IMF revises country's growth forecast to 4.5pc
KATHMANDU:
The International Monetary Fund (IMF) has revised the growth forecast for Nepal in the current fiscal year to 4.5 per cent, following the timely budget allocation and indication of improved agriculture production.
“Nepal can achieve growth of 4.5 per cent, this fiscal year, due to indications of timely implementation of programmes in the budget and ample monsoon that will help increase agro productivity,” informed senior resident representative of IMF for Nepal Thomas J Richardson.
An IMF team led by Alexander Pitt has just concluded a visit meant to assess recent macroeconomic developments and progress on key reforms in the financial sector, public financial management and tax administration.
The government had projected growth of 5.5 per cent in the current fiscal year. Earlier
in April, IMF’s World Economic Outlook 2013 had also projected that the current fiscal
year is expected to grow by four per cent.
In last fiscal year, growth decelerated due to weak agricultural activity and delayed approval of the budget, which impeded capital expenditure and, together with strong revenue growth, led to a fiscal surplus.
“Growth is expected to recover somewhat in the near term, boosted by a favourable monsoon, and measures to expedite capital spending,” pointed out Richardson, during a press meet organised today.
However, he expressed concerns over the rise in general price level. “Since Nepal’s major trading partner India is also going through a high rate of inflation and due to the current depreciation of the Nepali rupee against the dollar, it will further add inflationary pressure, so
inflation will be high at a high single to low double digit,” he added.
Earlier, inflation projection by IMF for Nepal stood at 7.9 per cent for the current fiscal year. The central bank has targeted to contain inflation at eight per cent this year.
“Our policy advice for Nepal is to push forward with capital spending, because Nepal needs investment in physical infrastructure and also in education, health and sanitation, among others, for future growth,” said Richardson, adding that the tendency to bunch up capital expenditure at the end of the fiscal year needs to be done away with.
The mission has noted that the exchange rate peg with the Indian rupee serves as a useful nominal anchor, and welcomes the authorities’ decision to maintain it.
“India is Nepal’s biggest trading partner, so changing the peg will further deteriorate Nepal’s competitiveness,” pointed out Richardson.
The recent depreciation creates an opportunity to benefit from enhanced international competitiveness, which could be boosted by structural measures to lower the cost of doing business, according to IMF.
‘Reduce subsidy on petro products’
International Monetary Fund (IMF) has once again asked Nepal to strongly consider reducing subsidy being provided on petroleum products. Nepal Oil Corporation (NOC)’s losses need to be urgently addressed, to free up resources for investment and social spending. The recent adjustment of fuel prices is a welcome step, said senior resident representative of IMF for Nepal Thomas J Richardson. “Instead of subsidising fuel like petrol and diesel, the government can use that money in building schools or roads,” he said. IMF has advocated an automatic price adjustment mechanism to avoid recurrent losses of NOC, which ultimately have to be financed by the government.
Source: THT
