The GDP growth that Nepal is expected to post in 2012/13 is the second lowest among South Asian economies with Bangladesh expected to record the lowest 3.3 percent growth and Bhutan the highest of 8.6 percent in the year, the ADB said in its flagship annual economic publication, Asian Development Outlook 2013, released on Tuesday.[break]
Nepal´s economic growth stood at 4.6 percent last fiscal year when the weather was supportive and services sector witnessed a robust growth, defying a slowdown in manufacturing sector and lingering political uncertainties.
The lower economic growth forecast for this year is the result of anticipated 11.3 percent drop in paddy production, eight percent fall in maize production and two percent reduction in millet production. Inability to come up with a full budget, which caused funding shortages for ongoing development activities, has also been identified as the other reason for low GDP growth forecast.
Along with shrinkage in GDP growth, consumer prices are also expected to rise by double digits this fiscal year, exerting more pressure on consumers, especially the poor.
The ADB has expected inflation to hover at 10.5 percent this fiscal year on the back of lower agricultural harvest, wage pressures, hike in fuel prices, continued power shortages and supply-side constraints like presence of layers of intermediaries and black marketeering.
It is said supply-side constraints, depreciation of Nepali rupee against currencies of third countries as in the recent case, rising wages and structural problems like lack of or low quality of infrastructure make two-third contribution to price hike in the domestic market. The rest is attributed to rising prices in India, from where Nepal imports most of its goods.
Nepal´s imports, from India and third countries, are expected to swell by 18.7 percent this fiscal year, with exports posting a nominal growth of 0.2 percent, according to the ADB. This will further widen the country´s trade deficit -- the difference between exports and imports -- this fiscal year. With the large increase in trade deficit and more moderate remittance growth, the current account surplus will likely contract sharply to a deficit of 0.5 percent of the GDP in the fiscal year 2012/13, the ADB said in its report.
“The economic outlook hinges on how political uncertainties are resolved, the weather and remittance inflows,” the ADB report said. In addition to these, adequate fertilizer supplies and timely adoption of budget -- which would allow revision of tax rates, authorization of domestic borrowing and provision of funding to accelerate development activities - would let the country to record GDP growth of 4.2 percent in the next fiscal, the ADB has predicted.
Monitor co-ops properly´
The ADB has urged the government to better understand and monitor activities of cooperatives that are largely unregulated.
“Any major shock to deposit and lending practices of cooperatives, whose combined deposits and lending portfolios are larger than those of either development banks and finance companies, would likely harm the entire banking system and economy,” the latest ADB report said.
In this regard, the International Monetary Fund has estimated that a financial crisis in Nepal could cause GDP loss of 30 percent in the first four years before growth recovers to baseline trend, reserves to fall by 50 percent in the first two quarters of crisis and a fiscal cost as high as 23 percent of the GDP.
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