NCP’s Ambitious 10 % Economic Growth: Impact on the Capital Market

Political parties have started unveiling their manifestos for the upcoming March 5 general elections. Like in the previous polls, their manifestos are filled with a baggage full of ambitious promises and sweeping development agendas. This time is no exception.

The recently unified Nepali Communist Party (NCP), which was recently formed after merging nine left parties, has promised to accelerate economic growth rate to over 10 % within coming five years.

Other notable promises include creating 150 thousand additional jobs, ensuring jobs to 500 thousand youths in a year, generating 10,000 MW additional hydropower in next five years, and reducing multi-dimensional poverty to 10%.

 Is over 10% economic growth realistic?

According to experts, the promise is theoretically possible but highly challenging in a context when Nepal’s economic growth has been on a shock-and-recovery mode over the past five years following the COVID-19 pandemic and subsequent economic slowdown.

During this period, Nepal’s average Gross Domestic Product (GDP) stands at approximately 4.14 %. For the current fiscal year, 2082/83, the government has revised GDP forecast to only 3.5%, significantly lower than the initial 6% target. The country witnessed a growth of 4.61% in the previous FY.

The revised growth forecast is attributed to the agricultural decline, sluggish construction and real estate, the recent Gen-Z movement, poor capital spending (only around 15% as of Magh), and weak domestic demand, said economists.

Additionally, low productivity, heavy dependence on labour export, high import dependency, political instability, weak governance, infrastructure and logistic weaknesses and regulatory and bureaucratic hurdles contributes to limit growth.   

The World Bank has projected the growth at just 2.1% for the current FY.

Economist Chandra Mani Adhikari cast doubt on the feasibility of achieving the over 10% economic growth under current conditions.

“Given these current conditions, how is it possible to achieve the 10% growth target? he asked, terming the promise as politically appealing, but economically unrealistic.  

According to him, annual capital expenditures should be over Rs 20 kharba to achieve such a target. However, the country saw only 10 kharba capital expenditure in the previous FY, and this year too, the spending trend is not satisfactory, he said.   

He noted that the government on average contributes Rs 5 kharba in capital expenditure while the private sector adds another Rs 5 kharba. Amid weak economic situations and limited credit expansion by banks and financial institutions, the private sector is lagging behind.

Foreign direct investment (FDI) also remains limited. According to him, the country drew only Rs 12 arba in FDI in the previous FY.

Impacts on the Capital Market

According to Adhikari, strong economy is the key for the sustainable development of the capital market. When economic growth consolidates, companies’ financial performance improves, balance sheets become healthier, and investor confidence goes up.

If the capital market expands without the support of strong economic growth, such growth may not be sustainable, he warned.

Hydropower specialist and entrepreneur Gyanendra Lal Pradhan also pointed out the interrelationship between economic growth and the capital market. “The market will grow sustainably when economic growth becomes strong.”

Financially sound companies directly contribute to economic growth, and such companies should be prioritised by the state.

Additionally, he suggested that the capital market and real estate sectors could be used as a tool to uplift the economically disadvantaged population in the country. He claimed that over 3 million people could benefit from these sectors if supportive policies are introduced.

He noted that currently the stock market is at a low point, proposing policy measures like increasing the margin landing limit to 90% from the existing 70% to boost the market.