World Bank suggests three-phase economic resilience model

Economy to grow by 2.1 per cent

Kathmandu, July 23

The World Bank has proposed a three-phase actions model to move the economy to resilience.

The relief, restructuring and resilient recovery phases are believed to support the government’s efforts in providing relief and building a resilient recovery.

Terming them ‘actionable measures for the government’, the multilateral donor in its Nepal Development Update 2020 published on Thursday said that the present crisis would require a multi-faceted response given the wide-ranging impact.

According to the report, the government should allow temporary social security, tax and rental and utility deferrals, provide wage subsidies and suspend import duties for critical supplies, and announce a time bound subsidised emergency financial package for priority sectors like tourism and agriculture in the relief phase.

It also recommended supporting local levels in the distribution of relief packages, including seeds and fertilizers to the farmers and centrally procure agriculture produce to respond to food security needs.

Expansion of the reach and coverage of mobile banking and digital financial services, promotion of digital literacy and establishment of information technology centres, simplification of investment approval process, and provision of fiscal incentives are suggested for medium term ‘restructuring’ phase.

Likewise, for the resilient recovery, policy measures like investment climate reforms including the foreign direct investment, increasing access to finance through digital services, long-term insolvency and out-of-court procedures, and guidelines to support environmental management are suggested.

While the government has adopted various relief measures to contain the pandemic, reduce the impact on households and provide economic support to the most vulnerable firms, the report highlights the importance of reforms to support a resilient recovery.

WB’s Senior Economist Dr. Kene Ezemenari said that for a resilient recovery and inclusive growth, economic support measures to firms and workers in the informal sector would be important.

“Incentives to agribusiness-based and forest-based small and medium enterprises (SMEs), with a focus on returnee migrants and youths, could help increase employment and food security. Inclusive growth could be further promoted through entrepreneurship support programmes and grants to small and medium enterprises,” the author of the update said in a web-launch programme of the report.

Speaking at the event, Finance Minister Dr. Yuba Raj Khatiwada said that the country needed to address the crisis with macroeconomic and sectoral policy focused on fiscal stability, financial sector stability, a digitally-oriented green economy and resilient public services.

He appreciated the rapid action taken by the development partners, including the World Bank, Asian Development Bank, IMF and others for providing Nepal with tangible resources and support to maintain our fiscal balance and accelerate growth and inclusive development.

The government through its budget for the current fiscal year 2020/21 and Nepal Rastra Bank through the Monetary Policy have laid out the plans to support the SMEs, agri-businesses and rehabilitate the industries severely hit by the COVID-19 pandemic.

WB’s Country Director for Maldives, Nepal and Sri Lanka Faris Hadad-Zervos said that for Nepal to emerge stronger from the crisis, it was important to adapt quickly to the new reality.

“We are encouraged to note the early start made by the government with the development of Nepal’s relief, restructuring and resilience plan and are committed to work together with multilateral development banks and development partners in helping the country build back greener and better,” he said.

 

Economy to grow by 2.1 pc

The World Bank estimated that the economy would contract sharply to 2.1 per cent in the current fiscal year against the government’s projection of 7 per cent.

The impact of COVID-19 pandemic and related lockdown will make a serious impact on the economy, despite efforts of the government to curb the economic fallout from the crisis, said the multilateral donor.

According to it, transitioning the economy from the relief stage through to restructuring and resilient recovery requires a strategic approach to get the country back on a sustainable and inclusive growth path.

As per the report, economic activity in the tourism sector will remain weak and remittances inflows will be moderate. Supply chain disruptions will keep industrial and agricultural production low.

“Low economic activity and oil prices will also keep imports low and below the pre-crisis levels, leading to a projected narrowing of the current account deficit to 6.5 per cent of GDP. Lower imports will continue to limit revenue collection,” read the report.

However, fiscal measures announced as part of the FY2021 budget, including a revision of custom duties, will provide some support to the budget as spending levels on relief and recovery efforts remain elevated, said the bank.

Published in The Rising Nepal daily on 24 July 2020.