ADB projects economic growth at 6.3%

Kathmandu, Sept. 27

 The Asian Development Bank (ADB) has said that Nepal’s economic growth will remain at 6.3 per cent in fiscal year 2019/2020. 

The country’s economy can expand further if the execution of public capital expenditures, including at sub-national levels, improves substantially and private investment remains strong, ADB said in its Nepal Macroeconomic Update released on Friday. 

This estimate is much lower than the government projection of 8.5 per cent for the current fiscal year.

 “Near normal monsoon this fiscal year, efforts to accelerate the implementation of large infrastructure projects, and increase in tourist arrivals will support high growth,” said ADB Country Director for Nepal Mukhtor Khamudkhanov.

According to the bank, the floods in early July damaged paddy saplings in many parts of the country, which could lower agriculture growth compared with FY2018/19 figures. 

The industry sector is expected to expand by 7.9 per cent this year, buoyed by improved electricity supply and efforts to improve investment, including in major infrastructure. 

Similarly, the services sector is likely to grow by 6.9 per cent with the expansion of wholesale and retail trade, financial intermediation, and travel and tourism subsectors.

The update says inflation is projected to rise to 5.5 per cent in FY2019/20 from 4.6 per cent in FY2019, assuming a somewhat smaller harvest, a marked pickup in government expenditures, and a moderate rise in inflation in India, the country’s main supplier of goods and services.

But, the government inflation estimates stand at 6 per cent for the current fiscal. 

Nepal’s fiscal deficit moderated to 5.1 per cent of gross domestic product (GDP) in FY2018/19, down from 6.7 per cent of GDP in FY2017/18 on lower-than-planned capital expenditures. 

Execution of capital expenditures at 75.9 per cent in FY2018/19 was less than that of FY2017/18 at 81.0 per cent.

The multilateral donor said that Nepal increasingly faced the risk of external sector instability due to large trade and current account deficits. 

According to it, the current account deficit moderated to 7.7 per cent of GDP, down from 8.2 per cent in FY2017/18, on implementation delays of large national pride projects and markedly curbed import growth. 

Merchandise export growth exceeded expectations, but with low export base, earnings remained small, widening the merchandise trade deficit by 4.4 per cent. While remittance has shown healthy growth, a substantial rise in the near future is unlikely to offset the rise in the trade deficit, said the ADB. 

“Downside risks to outlook in FY2019/20 center on challenges to the smooth implementation of federalism. Adequate human resources, mainly technical staff, and capacity in the relatively new sub-national governments coupled with necessary legislative frameworks are required for the smooth implementation of federalism,” said the bank.

Published in The Rising Nepal daily on 28 September 2019.