Expecting a resilient growth

With "broadly stable" macroeconomic situation, the recent political turmoil and the global meltdown notwithstanding, NEPAL expects real GDP growth in fiscal year 2009-10  to be "resilient" at 4 percent, marginally down from 4.7 percent recorded in FY 2008-09. This is indicated in International Monetary Fund's "Nepal-Assessment Letter for Asian Development Bank" (August 17, 2009). The insignificant decrease in GDP is attributed to power shortages, difficult labor relations, and adverse weather conditions. Due to the continued growth of remittances, the current account and balance of payments remain in surplus and foreign exchange reserves have increased to a level sufficient to cover 8 months of imports.

"Going forward, Nepal's economic prospects depend on creating an economic environment conducive to growth. The exchange rate peg with the Indian Rupee remains appropriate in the near term and keeps Nepal's inflation rate close to Indian CPI, with fiscal discipline remaining essential to underpin the peg and maintain macroeconomic stability. Structural reforms and infrastructure investments continue to be key to maintaining competitiveness over the medium term. The main risks to the near-term outlook stem from lower remittances and financial sector weaknesses related to the exposure to the real estate sector", the Assessment letter said.

It is widely expected that as peace process gains momentum, pace of development would automatically accelerate. On the other hand, inclusive development definitely contributes to sustain peace. Thus, peace and development are interlinked and should be carried our together. "We have some good results, although not enough, in education, health, water supplies, community development activities and financial sector. However, we have to show concrete results in many other areas such as governance, employment, service delivery, upliftment of the life of marginalized population, infrastructures and energy. I hope, National Planning Commission will concentrate upon these issues while developing next periodic plan. I know that development partners have also shared these concerns with us time and again. Both of us have to jointly tackle these issues in the days to come", country's  Finance Minister Surendra Pandey observed in his speech at Nepal Portfolio Performance Review Meeting  held on December 3-4, 2009.

The Nepal government's Economic Survey 2009  estimates national economic growth rate in financial year 2008-09  to decline. In comparison to 5.3 percent GDP growth achieved at producers' price in FY2007-08, is estimated downwardly at 4.7 percent. If the agriculture sector suffered due to adverse weather situation, non agriculture sector could not perform..  Non-agriculture sectors of the economy that recorded expansion in FY2008-09 in comparison to the previous fiscal year have been, education (from 3.3 to 9.9 percent); construction (3.1 percent to 5.7 percent); and transport, communication, and warehousing (from 7.1 percent to 7.8 percent). Similarly, real estate, rent, professional services (4.4 to 4.5 percent); and public administration and defense (from 0.4 percent to 3.3 percent) also have recorded growths during the period. 

Other sectors except those mentioned above recorded either minimal or negative growth in FY2008-09 in comparison to FY2007-08. For example, agriculture and forestry (from 4.7 to 2.1 percent); aquaculture (from 7.1 percent to 4.5 percent); mines and explorations (from 2.8 to 2.5 percent); Wholesale and retail trade (7.0 to 4.7 percent). Likewise, hotel and restaurant (from 8.5 percent to 5.1 percent); financial intermediation (from 13.8 to 3.3 percent); health and social works (from 13.6 to 6.5 percent); and social and personal services (from 11.1 to 6.1 percent) also recorded declined growth in their respective sub-sectors. Among the sub-sectors recording negative growth in production are, production industry (from 0.2 to -0.5 percent); and electricity, gas and water (from 3.7 percent to -1.1 percent).  Of GDP shows among the production sector of the economy, agriculture contributed 32.4 percent, followed by wholesale and retail trade 13.7 percent; transport, communication, and warehousing 10.5 percent. Among other remaining sub-sectors, real estate and professional services 8.3 percent, manufacturing industry 6.8 percent, and construction 6.4 percent. Likewise, education, financial intermediation, and electricity, gas and water have their respective 6.0 percent, 4.8 percent, 1.7 percent shares to GDP. Of the remaining portion, education, public administration, and defense shared 2.0 percent, hotel and restaurant 1.5 percent, and health and social works contributed 1.3 percent to GDP. 

Inflation rate in the current fiscal year has remained very high. The point-topoint based CPI, which rose by 7.2 percent in mid-March 2008 recorded a growth rate of 13.1 percent by mid-March 2009. During the same period, the wholesale price index also has shot up from 6.6 percent to 12.3 percent. Likewise, the GDP deflator price index also rose steeply from 6.3 percent in 2007-08 to 12.2 percent in FY2008-09.

The ratio of domestic savings to GDP at current prices in FY2008-09 stood at 8.0 percent as compared to 11.2 percent in FY2007-08. Similarly, the ratio of national saving reached 32.3 percent in FY2008-09 from 31.5 percent in the previous year. Consequently, the ratio of investment to GDP down slid from 31.8 percent to 29.7 percent between these two periods. Ratio of net exports of goods and services to GDP, which remained adverse by 20.6 percent in the previous year, has reached 21.7 percent during this period.    

The Government of Nepal added up another 17.5 percent investment in public enterprises between FY2006-07 and 2007-08. By FY2007-08, investments made in the public enterprises totaled Rs. 165.61 billion comprising of Rs.91.92 billion as shares and Rs. 73.69 billion as loans. In FY2007-08 such investment amount stood at Rs. 140.94 billion with Rs.75.80 billion as shares and Rs. 65.14 billion as loans. The total Government of Nepal owned share investment fund with public enterprises, which was Rs. 38.90 billion in FY2006-07 grew by 23.7 percent reaching to Rs. 48.11 billion in FY2008-09. 

Exports, which had decreased by 2.9 percent during the first eight months of FY2007-08 has risen by 17.1 percent during the first eight months of FY2008-09. Imports, nonetheless, has shown the rising trend with 26.1 percent growth in the review period of this fiscal year as compared to 19.2 percent growth recorded during the same period of the previous fiscal year. The income from remittance, which amounted to Rs. 82.42 billion in the first eight months of the previous fiscal year has reached to Rs. 131.0 billion during the review period of this fiscal year. 

Tourism is an important industry in Nepal. The numbers of visitors to Nepal in the calendar year 2007 had increased by 37.2 percent while their number decreased by 5.0 percent during the same period in 2008. In the number term, 526,705 tourists had visited Nepal during 2007 while the number declined to 500,277 in 2008. On average days of stay, it has marginally decreased from 11.96 to 11.78 days. Despite the fall in tourist arrivals in FY2008-09, this sector earned foreign exchange worth Rs.16.82 billion in the first eight months as compared to the earnings of Rs. 18.65 billion the sector made in the whole duration of FY2007-08. Nevertheless, the growth rate of foreign exchange earnings during the first eight months of 2007-08 was 76.3 percent as compared to the growth of 54.5 percent achieved during the review period of this fiscal year. 

Sluggish   economic growth and heavy pressure of rising prices notwithstanding, country's foreign currency reserve remains at the satisfactory level with a favorable Balance of Payments, especially due credit to high remittance income . Three major reasons apparently causing the adverse situation against economic expansion and development are, disruption on movements being created from time to time, industrial relations, and energy supply. Though capital expenditure is not up  to the level of expectation, progress achieved in revenue mobilization in the Government sector has been very much encouraging. 

The Economic Survey 2009  focused on skill of overall economic management in a situation where the Nepalese economy entangled in the vortex of economic sluggishness amidst the double-digit price rise thereby adversely affecting the purchasing power and living standard of the Nepalese people. There is the necessity of wider reform initiatives on development efforts, investments, and regulatory areas for expanding the economy. The nation is also being made to bear adverse supply shock due to frequent Bandhs, chakka jams, strikes etc. For this, national imperative is making sufficient legal arrangements and ensuring effective enforcement of those provisions for completely banning Bandhs, strikes especially against transportation and movements of the people for allowing the country's economy move ahead in a smooth and natural way, and also providing relief to the people's livelihood.

Sources
(1) Economic Survey 2009, Government of Nepal)
(2) Remarks by Madhav Kumar Nepal Prime Minister of Nepal at a business interaction programme at a business    interaction programme in Mumbai, on August 21, 2009.
(3) Joint Press Statement on Official visit of the Prime Minister of Nepal, Madhav Kumar Nepal, to India (18-22 August 2009)
(4) Nepal Rashtra Bank
(5) Federal Ministry of Commerce, Government of India
(6) IMF's " Nepal-Assessment Letter for Asian Development Bank" dated August 17, 2009).