The IMF made the assessment during a six-day visit by its team led by Nepal Mission Chief Todd Schneider. [break]
Schneider blamed both external and internal factors for Nepal´s below par economic performance.
“Nepal´s trade partners, particularly India, are growing more slowly than expected, while the country´s agricultural output has weakened due to delayed monsoon,” he said. At the same time, significant “under-execution of spending plans” this fiscal year has also hurt the economy.
“Lack of clarity about the legal status of spending appropriations in the budget of current fiscal year means the government is likely to register a significant surplus in 2012/13,” Schneider said. “This tight fiscal stance is unfortunate as it will depress an already-slowing economy.”
As these problems are putting a dampener on the economy, other macroeconomic indicators were also considered not sound by the IMF.
“Inflation remains stubbornly high, while the external current account surplus has diminished,” Schneider said.
Inflation stood at 10.4 percent in the first five months of the current fiscal year to mid-December, while current account surplus - the difference between exports and imports of merchandise items and services - fell to Rs 1.64 billion during the period from Rs 24.89 billion recorded in the same period last year.
“Nepal´s trade deficit is also rising as imports have risen and exports declined (in dollar terms) during the five-month period,” Schneider said.
Amidst this gloomy outlook, the only encouraging factor is rise in remittance flows from Nepalis working abroad, albeit at a slower pace. “Although these flows have bolstered household incomes, they are also serving to finance imports of non-durable consumer goods,” Schneider said.
As a way out from these quagmires, the IMF mission has called on the authorities to take steps to accelerate high quality spending for poverty alleviation and public capital investment.
“Adoption of full year budget ordinance for 2012/13 would be welcome even at this late stage of the fiscal year,” Schneider said. “Equally important is early approval of budget ordinance for 2013/14 to facilitate planning by line ministries and avoid another year of budget delay.”
The IMF mission held discussions with Finance Minister Barsha Man Pun, Nepal Rastra Bank Governor Yubaraj Khatiwada, National Planning Commission Vice Chairman Dipendra Bahadur Kshetry, Finance Secretary Shanta Raj Subedi and other senior government officials during their Nepal visit, which concluded on Friday.
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