Finance Minister Janardan Sharma raised the economic growth projection for the current Fiscal Year 2021/22 set at 6.5 per cent by the previous government to 7 per cent in the hope that economic activities would increase with the expansion of vaccination against the global COVID-19 pandemic.
The minister's hopes were grounded on the fact that Nepal had started receiving a large consignment of vaccines for COVID-19 and economic activities had begun to expand. Nepal has fully vaccinated about 22 per cent population while more than 28 per cent are partially vaccinated.
The country had fallen to negative growth of 1.99 per cent in 2020/21 with the coronavirus taking a heavy toll on the economic activities. Before the advent of the pandemic, the country was on a high growth trajectory of above 6 per cent growth in Gross Domestic Product (GDP).
Post-quake reconstruction, political stability, availability of energy, favourable weather for crops, stable remittance inflow and implementation of infrastructure projects had supported the impressive boost in the economy.
The country hopes for the same in the post-pandemic scenario as all the variables are favourable. Increased paddy plantations and sufficient rainfall during this year's monsoon are expected to boost the production of rice, and increased demand has registered positive impacts on the production of goods and services in the country.
However, according to the Asian Development Bank (ADB), the Nepali economy is anticipated to grow by just 2.3 last year against government estimates of about 4 per cent. Likewise, the multilateral donor has put GDP growth at market prices at 4.1 per cent in the current fiscal year.
It has termed the ongoing vaccination campaign as a key to the economic recovery and warned that the possible surge in COVID-19 cases and subsequent strict containment measures could reverse the hopes. Meanwhile, expansionary budget and monetary policy will put pressure on price control.
Budget Mobilisation
While the implementation of the annual government budget has been poor for the last many years, especially in terms of capital spending, change in the government during the budget period, dissolve of the Parliament and preparation of the replacement bill for the budget of the current Fiscal Year 2021/22 as per the court verdict delayed the early budget planning and execution. The economy battered by the COVID-19 pandemic is expected to bounce back gradually to the pre-pandemic era, this year.
But the statistics are not so depressing as the country has collected about 23 per cent revenue by the end of the first quarter, which is about 5 per cent higher than the total government receipts last year.
Total revenue collection has reached Rs. 277.85 billion by the end of the third month of the current fiscal against Rs. 200 billion in the same period of the previous year. However, the country was under COVID-19 threat last year and the first wave had scared the businesses as well as the consumers.
Finance Minister Sharma has the challenge to utilise the budget allocated for the capital spending since the initial two months were spent on confusion and political wrangling over the budget and the great festival season is likely to impact the development work across the country for another month.
Despite these challenges, Minister Sharma is planning to spend at least 10 per cent of the capital budget every month. If he succeeds in executing this plan, there are chances of utilising about 80 per cent of the capital budget. However, he must overhaul the system of project implementation, shorten the process and activate the bureaucracy.
Although the mobilisation of the development budget has been poor for many years in the past, this year's performance so far is not encouraging because of only 3.42 per cent of the Rs. 435.24 billion capital allocation was utilised by the end of the first quarter against a 4.26 per cent utilisation last year. The size of the budget this year is Rs. 1.64 trillion. It was Rs. 1.47 trillion last year.
Private Sector Activities
The easing of restrictions imposed to prevent the contagion of coronavirus and reduction of daily caseloads has increased the confidence of consumers which has resulted in a shopping spree that was not seen in the last festival season. According to the producers and traders, the market has almost reached the level of pre-pandemic scenario during this Dashain.
A report published by the Confederation of Nepalese Industries (CNI) earlier this month reported that the income of the industry increased by 8 per cent in the last quarter of the last FY in comparison to the same period in FY 2019/20. About 64.8 per cent industrial capacity in the country was utilised in the last quarter last year.
The report has shown that the Nepali economy is gradually coming out from the impacts of the COVID-19 pandemic. This pandemic has directly affected the utilisation of industrial capacity. Similarly, about 83 per cent of the industry is ready to make new investments and expand its business.
This is fresh hope not only for economic growth but also for employment and export substitution.
The government should win the confidence of the private sector in terms of its fiscal policies and attract Foreign Direct Investment (FDI) with their cooperation.
Since internal resources are meagre in terms of development funding, Nepal needs a large amount of FDI and other international financial support to fund its development work including infrastructures like roads and electricity projects.
However, private sector businesses and industries are still reeling under the energy crisis while the Nepal Electricity Authority says the energy is being wasted due to less consumption. According to the CNI Report, about 68 per cent of industries are relying on the generator to operate their plants. Fossil fuel-based energy has increased the production cost by 4.9 per cent.
Large Projects
Large infrastructure and industrial projects that help in capital formation are the foundation of the overall economic development. But in the case of Nepal, infrastructure development has always met obstructions from beginning to the end and every project has witnessed time and cost overrun.
Take an example of the Gautam Buddha International Airport (GBIA) in Bhairahawa which was supposed to be ready for the international flight by the end of 2019 and serve the tourist during the Visit Nepal Year 2020 but it is not completed yet.
National pride projects like Nijgadh Airport, Budhigandaki Hydroelectricity Project are in limbo and may never be built. The West Seti Hydroelectricity Project has just remained the paper for the last two decades.
Former Finance Secretary Shanta Raj Subedi said that the low bidding and greed of government officials and contractors to earn extra money through the variation due to time overrun were the reasons behind the late completion of the projects.
Poor project preparedness, collusion between the government officials and contractors, weak financial and technical capacity of the contractors and poor monitoring by the governments have contributed to the poor performance of the development projects.
Meanwhile, experts have shown concerns over the repercussions that Nepal may face if it rejects an infrastructure project, Millenium Challenge Corporation (MCC), to be developed under the grant of support from the United States. The government and all major political parties must decide as soon as possible about the project.
This single project must not damage Nepal's image at the international level. Any clause or condition that contradicts the 'national interest' must be amended or removed from every agreement that Nepal signs.
Promoting Tourism
Tourism is the worst-hit sector by the COVID-19 pandemic. In FY 2019/20, it witnessed a negative growth of 16 per cent. Dozens of large investors halted their business expansion projects as the pandemic fear drastically reduced the number of tourists, with about an 81 per cent decline in international tourist arrivals in 2020.
Many tourism and recreation activities have just begun to reopen and opening the country for the tourist who has received the vaccines against the COVID-19 will have some positive impacts on the business.
Likewise, government relief programmes including tax and interest rate discounts and access to concessional loans as well as refinancing will help them.
Nepal has to put extra effort to meet the target of attracting 3.5 million tourists by 2025 as envisioned by the 15th five-year plan and generating US$2 billion in revenues.
In 2020, Nepal had planned to attract about 2 million tourists which couldn't be materialised due to the pandemic.
(Published in The Rising Nepal daily on 20 October 2021)
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