Floods give setback to the economic growth

Kathmandu, Sept. 26: Citing loss of lives and livelihoods, and destruction caused by the severe floods and landslides in August, the Asian Development Bank (ADB) has decelerated Nepal’s economic growth to 4.7 per cent for the current fiscal year 2017/18.

In its recent Macroeconomic Update for Nepal, launched Tuesday, the multilateral donor agency revised the growth of Gross Domestic Product (GDP) from its earlier estimate of 5.4 per cent.

The government, in its budget of the current fiscal, had announced a growth rate of 7.2 per cent for the country for the fiscal year 2017/18. The country achieved a growth rate of 6.94 per cent last year – the highest in more than two decades.

“The growth forecast for the current year has been revised down from the earlier estimate in the wake of severe floods and landslides in August that affected one third of the country. The floods and landslides resulted in the loss of human lives and livelihoods and destruction of crops,” reads the report.

According to the report, the agriculture sector, which accounts for nearly one-third of the nation’s GDP, was badly hit and is likely to expand by just 2.4 per cent this year compared to 5.3 per cent last year, owing to destruction of paddy plantations and other major crops in the Terai.

However, it said that the industry sector was likely to expand by 6.6 per cent this year due to better electricity supply and availability of construction materials.

The industry sector, which accounts for more than 10 per cent of the GDP, grew by 10.9 per cent last year, up from a fall of 6.4 per cent in FY 2015/16.

Similarly, the services sector is projected to grow by 5.5 per cent, due to an expansion of financial intermediation, wholesale and retail trade, and tourism subsectors.

“Services sector with contribution of approximately 55 per cent to the nation’s GDP expanded by 6.9 per cent in FY 2016/17, up from 2 per cent in FY 2016/17. The growth in the services sector is mainly due to the normalisation of trade and record arrival of tourists, reaching pre-earthquake levels, thus favouring wholesale and retail trade, hotel, restaurant, travel and communication sub-sectors,” reads the report.

“The economy rebounded strongly in FY 2017 from FY 2016, a difficult year with external shocks. This year we expect economic growth to revert somewhat to the trend growth rate, partly because of floods,” said Sharad Bhandari, principal economist and officer-in-charge of ADB’s Nepal Resident Mission.

He said that reforms to improve the quality of public and private investment and to encourage a competitive private sector would reduce the economy’s dependence on external factors, such as the monsoon and prospects for remittances.

The ADB said that inflation was expected to rise to 6.5 per cent this year from 4.5 per cent last year, partly due to lower inflation in India and current fiscal’s expansionary budget.

The country has been witnessing an average inflation of 8.9 per cent in the last six years.

Another multilateral donor, the World Bank, about a week ago estimated that Nepal would see a growth rate of 4.5 per cent this year.