Economic growth slumps to six-year low
KATHMANDU, JUL 13 -
For yet another year, the country’s economic growth was held hostage by political instability. With the government struggling to present a full-fledged budget even as nine months of the fiscal year have gone by, the country’s economic growth has slumped to a six-year low. The Economic Survey released on Friday said Nepal’s growth will be limited to 3.6 percent.
Since the 2008 Constituent Assembly elections, the annual budget has either been late or its endorsement delayed even if presented on time.
The provision of a one-third budget introduced by amending the Interim Constitution has further hit the fiscal estimate process. Introduced as a stop-gap measure, the one-third budget may have been handy for the government and the political parties, but not for the economy, and its ramifications were visible this fiscal year.
The survey rightly concluded that the protracted political transition has affected the economy. “As political agendas have overshadowed economic ones, political transition should be ended as soon as possible to lead the country to economic agendas,” it said.
The Survey has indicated rising trade deficit and ‘four-year’ high inflation besides slow economic growth as key challenges of the economy. “Production and productivity needs to be increased to meet these three challenges,” the report said.
The delay in the annual budget this year resulted in low government expenditure. As of July 10, the government’s capital expenditure remained at Rs 40 billion, against the total allocated amount of Rs 66 billion. “Increment in capital expenditure is a must to attain development,” the report said.
“As most of the time this fiscal was spent without the full budget, the slow economic growth rate is not surprising,” said Former Finance Secretary Rameshore Khanal.
“This reduced the government’s investment capacity and it ultimately brought down the government and private sector’s capital formation.”
The dismal economic growth this year shows why agriculture is still the key component of the country’s economy. The survey admitted this fact, saying that agricultural output plays a major role in increasing or decreasing the country’s economic growth . With the late monsoon and fertiliser shortage, the agriculture sector’s growth was limited to 1.3 percent, the lowest in the last six years.
Making public the survey report, Finance Minister Shankar Prasad Koirala said low agricultural growth followed by weak growth in the industrial sector brought down the entire economic growth .
Besides agriculture, the industrial sector’s growth too grew slowest over the last four years at just 1.5 percent. The average growth of the industrial sector over the last five years has remained at 1.7 percent.
Former vice-chairman of the National Planning Commission (NPC) Jagadish Chandra Pokharel said the sluggish private sector confidence due to a lack of good investment environment affected the industrial production.
The Industrial sector growth could not reach the 5 percent mark the entire past decade and the sector’s contribution to the economy came down to 6.2 percent this year, from the 8.5 percent a decade ago.
The government’s plan to keep inflation at 7.5 percent failed as the average rate during the first 10 months of this fiscal stood at 9.98 percent.
The Finance Minister said that despite low money supply, inflation remained at the higher side due to supply related problems.
The country’s trade deficit has reached an alarming level as remittance and the entire exports are not enough to sustain the rising imports. According to the Finance Minister, trade deficit as of mid-June has reached Rs 438.67 billion.
“The immediate outlook of the economy is worse due to the alarming trade deficit fueled by petroleum imports,” Khanal said. “The US dollar has also strengthened and its impact will be seen in the next fiscal year too as it creates a huge gap between export and imports.”
He said such a situation may not help increase investment as the cost of investment would rise. “As such, next year’s budget must take up measures to reduce the trade deficit, end subsidy in petroleum, promote solar power and complete the ongoing hydropower projects as soon as possible,” he added.
The economic survey also showed that the poverty level could not be reduced as planned. The current interim plan, which ends this fiscal, had targeted to bring down poverty to 21 percent. It, however, remained at 23.8 percent.
The report said that the failure to introduce the full budget on time, low capital expenditure and problems in national priority projects resulted in low government investment, while private sector investment also could not increase adequately, and this ultimately led to the slow progress on the poverty front.
Former NPC vice-chairman Pokharel said slow economic activities in the absence of a timely budget was mainly responsible for the slow progress in the poverty reduction plan.
According to the survey, the per capita income went down to $ 658 as of June-end, from the $717 in mid-March, particularly due to the Nepali currency’s devaluation against the US dollar in recent months.
Economic survey
• Agriculture growth slowest in last four years
• Industrial growth slowest in last four years
• Political instability and delayed budget presentation main reasons for the sluggish growth
• Economic growth, inflation and trade deficit three key challenges for economy
• Poverty level fails to decrease as targeted by the current interim plan
• Per capita income declines due to strengthening of the US dollar
Source: The Kathmandu Post
