Kathmandu, Oct. 4:
The World Bank has projected that Nepali economy would rebound to 3.9 per cent in the current Fiscal Year 2023/24 downgrading the growth projection of 6 per cent made by the government in its budget speech for this year.
However, this is a ‘significant’ increase from the growth of last FY 2022/23 when the country achieved 1.9 per cent addition in the Gross Domestic Product (GDP) at the constant market prices while the government had announced to achieve 8 per cent expansion in the economy.
This forecast is made citing the lagged impact of the lifting of import restrictions, strong rebound in tourism, and the gradual relaxing of monetary policy, according to the World Bank’s twice-a-year country update published on Tuesday.
Likewise, the multilateral donor forecasted that Nepal would see about 5 per cent economic growth in the coming FY 2024/25.
“However, there are multiple risks to the outlook including an erratic monsoon, which could dampen agricultural growth; a renewed spike in commodity prices or continued food export bans by India which would raise prices; and higher inflation which could keep policy rates elevated, increase domestic debt servicing costs, and drag on growth,” said a WB statement.
The report also explores the drivers of external competitiveness for Nepal. The country’s total exports amounted to 6.9 per cent of the GDP in FY2022/23, representing only a third of the exports of other South Asian middle-income countries on average.
The analysis finds that the real appreciation of the exchange rate and continued low labour productivity are associated with Nepal’s lower exports. As per the report, Nepal suffers from labour productivity deficit across all three sectors – agriculture, industry, and services – compared to peer countries and its main trading partner, India.
“Amid challenges, Nepal is leading the way towards operationalizing its green, resilient, and inclusive development vision to shape the country’s long-term economic recovery,” said Faris Hadad-Zervos, World Bank Country Director for Maldives, Nepal, and Sri Lanka.
According to him, improved external competitiveness is key to driving this recovery and enabling Nepal to compete in export markets, in terms of both prices and quality. This requires emphasis on reforms to help increase domestic productivity and reduce the inflation differential with Nepal’s trading partners.
Industry to witness better growth The Nepal Development Update also projected a significant growth in industry sector forecasting 3.2 per cent growth at constant factor price which is an improvement from last year’s 0.6 per cent growth. Similarly, for the next fiscal, 6.3 per cent growth projection is made.
Likewise, the service sector is expected to grow by 5.1 per cent this year – against 2.3 per cent of previous year – and 5.9 per cent next year. But growth of agriculture sector is not encouraging as it is estimated to witness the growth of 2.1 per cent this year against the expansion rate of 2.7 per cent last year. For the next fiscal, growth forcast of agriculture sector is made at just at 2.5 per cent.
Meanwhile, the World Bank has forecast 7.5 per cent inflation rate for this year, about 1 per cent up from the government’s forecaste of 6.5 per cent.
Regional growth prospects Nepal’s growth in the past two year has remained significantly below the South Asian average and is projected to continue the trend till next fiscal.
Last year Nepal’s growth rate of 1.9 per cent was much below the regional average of 5.8 per cent. Likewise, this year and next year, South Asia is projected to have 5.6 per cent growth on an average, and Nepal is unlikely to meet it.
While there is a regional slowdown as all countries in South Asia will witness lower growth against the average of 2015-19 period, according to ‘South Asia Development Update, Toward Faster, Cleaner Growth’ report published on the same day, Nepal’s growth prospects are weaker than the regional members except Sri Lanka and Pakistan – both the countries are projected to see the growth of 1.7 per cent this year.
India will achieve the highest growth rates in the region – 6.3 this year and 6.4 next year, yet this is below the country’s achievement of pre-COVID-19 period.
However, projection of 5.8 per cent growth for South Asia is higher than any other developing country region in the world, but slower than its pre-pandemic pace and not fast enough to meet its development goals.
Regional growth prospects are subject to downside risks, including due to fragile fiscal positions, said the WB.
Published in The Rising Nepal on 5 October 2023.
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