Economy to grow by 6.2 pc: ADB

Kathmandu, Apr. 3: A recent projection of the Asian Development Bank (ADB) showed that Nepal’s economy would grow by 6.2 per cent in the current fiscal year 2018/19, and the growth would be sustained next year as well with 6.3 per cent.

The ADB, in its recent Nepal Macroeconomic Update, projected the stable growth outlook on the basis of strong domestic demand, fueled by a large budget allocation to the subnational governments and accelerated post-quake reconstruction.

“Challenges to smooth implementation of fiscal federalism and maintaining fiscal discipline at large could pose potential risks to the outlook. Nepal has the potential to achieve and sustain higher growth rate over a long period time if these challenges are addressed,” said Mukhtor Khamudkhanov, ADB’s Country Director for Nepal.

According to the multilateral donor, the agriculture sector is likely to grow from 2.8 per cent in the last FY 2017/18 to 4.5 per cent this year owing to good monsoon that is expected to boost paddy production to 5.5 million tons, a rise of 8.4 per cent from the previous year.

Similarly, the industry sector is expected to expand by 7.1 per cent this year buoyed by improved electricity supply and efforts to improve the investment climate.

Likewise, the service sector is expected to grow by 6.4 per cent with the expansion of wholesale and retail trade, hotels and restaurants, and financial intermediation.

The update by the bank projected 4.4 per cent rise in inflation from previous year’s 4.2 per cent, partly reflecting somewhat higher inflation expected in India, stable oil prices, and higher government expenditures under the new federal structure.

Revenue collection has primarily increased on higher import growth and an improvement of the tax system. The budget as of mid-January 2019 is in surplus by Rs173.3 billion owing to strong revenue growth and a marginal slowdown in recurrent expenses.

However, it warned that the past culture of spending the capital budget in the end of the fiscal year could affect the quality of the development projects.

“Though capital expenditure has surged in the fiscal year through mid-February, its execution stands at only 22.5 per cent. This could again lead to a spending spree in the last month of the fiscal year, undermining the quality of capital projects,” read the update.

With rising trade and current account deficit, Nepal increasingly faces the risk of external sector instability. Data to mid-February 2019 show that trade deficit has surpassed net invisible earnings, widening the current account deficit to $1.5 billion, marginally up from a deficit of $1.4 billion in the year earlier period.

Published in The Rising Nepal daily on 4 April 2019.