ADB says govt’s growth target won’t be met

KATHMANDU, MAR 08 -

The government has reiterated attaining the targeted 5.5 percent growth this year, but the Asian Development Bank ( ADB ) is not so sure about that.

The Asian lender has projected that the country’s gross domestic product (GDP) will grow at a more modest 4.5 percent citing the less than expected capital spending and slightly lower service sector, according to the latest issue of the Macroeconomic Update on Nepal. The ADB upwardly revised last fiscal’s growth rate of 3.56 percent encouraged by an impressive growth in farm production due to a favourable monsoon.

This year, Nepal’s paddy output swelled 12 percent while maize production rose 10 percent, according to the Finance Ministry. Livestock and winter crops are also expected to perform well, according to the Mid-Term Review of the Budget.

The ADB said that a timely budget this year was expected to boost capital expenditure in the last quarter and robust growth in remittance was expected to fuel the service sector to allow the country to achieve a 4.5 percent growth rate. Due to structural problems, the contribution of the industrial sector is expected to remain low continuously, said the ADB . Although the government is convinced that it can rein in inflation to 8.5 percent this year, the multilateral aid agency has, however, estimated that it will remain at 10 percent. Inflation was recorded at 9.7 percent in the sixth month, according to Nepal Rastra Bank.

ADB has made a higher inflation projection due to wage pressure, persistently high prices in India, rising fuel prices, lower interest rates, presumably a weak Nepali rupee and supply side constraints, according to the Macroeconomic Update.

Pointing to the slow capital expenditure this year despite a timely budget, the ADB said that capital expenditure was expected to remain at 3.5 percent of GDP against the target of 4.4 percent. In the last fiscal year, expenditure amounted to 3.1 percent of GDP.

“There is an urgent need to ramp up both the quantum and quality of capital spending as it not only crowds in private investment, but also helps create the foundation for the lacklustre growth to take off on an employment centric, high, inclusive and sustainable growth path,” said the report.

Source: The Kathmandu Post