The growth projection is higher than 3.87 percent that the Central Bureau of Statistics estimated a couple of weeks ago. Like CBS, the leading multilateral donor attributed the slowed growth to protracted post-conflict transition. [break]
ADB, however, projected economy to improve modestly to 4 percent in 2011/12. The projection is based on assumption that the country will continue to enjoy normal weather conditions and tourism related activities will pick up due to Nepal Tourism Year 2011 campaign.
“Economic performance in fiscal year 2011 and 2012 will rest primarily on progress in the post-conflict transition process,” reads the Asian Development Outlook 2011 that ADB released on the day.
The report notes that the risk mainly comes from political vacuum, rift seen in the political parties and suspicion over timely conclusion constitution writing.
“The country must attain progress toward completing the peace process, resolving many of the contentious issues, such as army integration and state restructuring,” said Barry J Hitchcock, country director of ADB.
ADB says that weather-induced recovery will help Nepal´s agriculture sector to grow by 4 percent. “However, this improvement will not be enough to offset the deceleration in non-farm activities -- hit hard by political uncertainty and power cuts,” said Hitchcock.
The report notes that monetary tightening by Nepal Rastra Bank, aimed at stabilizing the real estate market, will further curtail services expansion. A slowdown in construction activity and higher fuel costs will limit industry´s growth to 1 percent in 2011, compared with 3.3 percent recorded a year earlier.
ADB has projected Nepal´s inflation to remain at 10 percent in this fiscal year, higher than central bank´s revised target of 9 percent. “High food and oil prices and domestic distortions such as power cuts will continue to exert upward pressure on prices,” said Hitchcock.
He, however, anticipated inflation to moderate at 8 percent in 2011/12, assuming moderation in Indian prices and strict enforcement of government´s decision to prohibit transporters´ syndicate.
ADB cautions that both domestic and external factors will continue to challenge any further strengthening of the balance of payment (BoP), which suffered a deficit of around Rs 13.5 billion in mid-February 2011.
ADB also recommended the government to reform labor law, saying that labor laws in Nepal -- the most rigid in South Asia -- are major hindrance to job creation, among others.
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World Bank projects Nepal’s GDP growth rate to average at 6.5%
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