ADB projects 5.5 percent economic growth

KATHMANDU, Sep 3:

Asian Development Bank (ADB) has projected Nepal's economy to grow by 5.5 percent -- 0.5 percentage points lower than the government projection -- in the current fiscal year.

Releasing Macroeconomic Update in Kathmandu on Thursday, the Manila-based multilateral donor, however, said that the growth depends on political situation, rainfall and reconstruction works.

"Under the first scenario, assuming a marginally better monsoon rainfall, modest pickup in actual implementation of reconstruction projects through the National Reconstruction Authority (NRA), gradual normalization of political scenario, continuation of previous trend in spending capital budget, modest recovery of tourism related activities and slightly better services sector growth, GDP growth is forecast at 4.5 percent," the update said.

"Under the second scenario, a slightly better rainfall -- average over the last five years -- and adequate paddy plantation in the main paddy plantation belts, robust pick up in manufacturing and construction activities propelled by accelerated spending by NRA and improved capital budget execution by line ministries, normalization of political scenario, and robust services sector performance -- including robust remittance inflows and quick recovery of tourism related activities -- GDP growth is forecast at 5.5 percent," it added.

But the adverse political situation and the slow capital budget execution are the two major downside risks that could drastically lower growth forecast, according to ADB Resident Representative Kenichi Yokohama.

"Though ADB estimate is lower than the government's target of 6 percent in the budget for the current fiscal year, the government can achieve the target if agricultural output grows by 2.5 percent -- based on subnormal monsoon in the first half of the fiscal year, whereas non-agricultural output has to grow by at least 7.7 percent, which is 4.1 percentage points higher than in the last fiscal year," the report said. It also said services output and industrial output should grow by over 6 percent and at least 13.6 percent, respectively, to meet the growth target.

"If the government can expedite the capital expenditure and reconstruction works, the economic growth could get a boost," Yokohama added.

Likewise, the multilateral donor agency has projected inflation to grow by 9.5 percent in worst case scenario and 8.5 percent in somewhat better supply.

"Under the first scenario, although non-food prices are expected to remain low as a result of continued lower fuel prices and stable price pressures in India, food inflation is projected to remain in double digit, resulting in overall inflation of 8.5 percent," it said, adding that under the second scenario, moderate price pressures in India, and higher intensity of supply disruptions caused by political strikes and blocking of major trading and distribution networks would push up food prices even higher than the one considered under the first scenario, especially that of cereals, legumes, vegetables and fruits.

"Similarly, non-food prices is likely to escalate, particularly that of clothing and footwear, and furnishing and household equipment. These factors will likely push up inflation to about 9.5 percent in the current fiscal year," the report adds.

Source: Republica