Economic growth may dip to 1.5%: WB

Kathmandu, Apr 12

The World Bank has lowered Nepal’s economic growth forecast for the current fiscal year 2019/20 to 1.5 per cent minimum to 2.8 per cent maximum in the wake of the coronavirus (COVID-19) pandemic from earlier estimates of 6.5 per cent.

In October last year, the multilateral donor had estimated that Nepal's Gross Domestic Product (GDP) would expand at the rate of 6.5 per cent.

"Nepal's growth is expected to fall to a range between 1.5 and 2.8 per cent in FY 2019/20 reflecting lower remittances, trade and tourism, and broader disruptions caused by the COVID-19 outbreak," said the bank in its latest 'South Asia Economic Focus' released on Sunday in Washington DC, USA.

It has revised its forecast by -4.9 to -3.2 per cent for this year. According to primary estimates, Nepal's economy had witnessed 7.1 per cent growth in the last fiscal year.

The government in its budget for the current fiscal year had projected the growth rate at 8.5 per cent, and another multilateral donor Asian Development Bank had put the numbers at 5.3 earlier this month.

According to the WB, a prolonged outbreak of COVID-19 would impact growth significantly with a further deceleration or contraction in services and industrial production.

Economic growth during FY 2020/21 is also likely to remain subdued due to the lingering effects of the pandemic with some recovery expected in FY2021/22. Nepal's economy will expand by 1.4 to 2.9 per cent next fiscal 2020/21 and 2.7 to 3.6 in FY 2021/22, according to the WB.

WB's Country Manager for Nepal Faris Hadad-Zervos said that the bank was closely monitoring how the COVID-19 pandemic was evolving across Nepal.

“Our immediate priority is to coordinate our action with the government, private sector and international development partners to ensure that health supplies and equipment are readily available and that a comprehensive recovery package is in place to support the poor and most vulnerable,” said Hadad-Zervos.

The report on south Asia has anticipated a sharp economic slump in each of the region’s eight countries, caused by halting economic activity, collapsing trade, and greater stress in the financial and banking sectors.  

India's GDP (at market prices) will increase by 4.8 to 5 per cent, Bangladesh’s 2 to 3 per cent and Pakistan -2.2 to -1.3 per cent, stated the WB.

"The impact of the pandemic will hit low-income people hard, especially informal workers in the hospitality, retail trade, and transport sectors who have limited or no access to healthcare or social safety nets," it said.

The report noted that the COVID-19 shock will likely reinforce inequality in South Asia. As played out across the region, the sudden and large-scale loss of low paid work has driven a mass exodus of migrant workers from cities to rural areas, spiking fear that many of them will fall back into poverty.

"While there are no signs yet of widespread food shortages, the report warns that a protracted COVID-19 crisis may threaten food security, especially for the most vulnerable," read the report.

The WB has recommended establishing temporary work programmes for unemployed migrant workers, enacting debt relief measures for businesses and individuals, and easing inter-regional customs clearance to speed up import and export of essential goods to minimise short-term economic pain.

Similarly, in the long run, governments should adopt expansionary fiscal policies combined with monetary stimulus to keep credit flowing in their economies. The report also urges governments to adopt temporary spending measures and coordinate with international financial partners to avoid unsustainable long-term debt levels and fiscal deficits.

Published in The Rising Nepal daily on 13 April 2020.