Kathmandu, April 12

Nepal’s economy is expected to expand by 0.5 per cent in this fiscal year, according to the International Monetary Fund, as trade disruptions along Nepal-India border points, delay in execution of post-earthquake reconstruction works, and unfavourable monsoon are most likely to hit output of goods and services.

The growth projection made by the IMF, through its World Economic Outlook Report released today, is the lowest in the last 14 years. Nepal’s economy last grew at this pace in Fiscal 2001-02 when growth of gross domestic product hovered around 0.1 per cent.

The IMF’s latest forecast is in stark contrast to government’s revised growth prediction of two per cent and the Asian Development Bank’s projection of 1.5 per cent.

Nepal had started gearing up for higher trajectory of economic growth beginning Fiscal 2013-14, when GDP growth stood at 5.05 per cent.

However, the country started falling behind many Emerging and Developing Asian economies following last year’s devastating earthquakes.

The devastating earthquake of April 25 and subsequent aftershocks shaved an estimated Rs 36.52 billion off the projected GDP of Fiscal 2014-15, limiting economic growth to 3.04 per cent in that fiscal.

As Nepal was rising from the rubble of quakes, another disaster struck the country when protests began in southern plains. The protests soon triggered blockade on Nepal-India border points, chocking supplies of petroleum products, raw materials and other essentials.

While problems on the supply side dealt a severe blow to industries and lowered consumption, agriculture yields were hit by unfavourable monsoon and shortage of fertilisers.

This is likely to play a key role in dragging down growth rate as agriculture sector’s contribution to GDP stands at around 31 per cent.

Adding fuel to the fire, post-quake reconstruction works, which were supposed to push up demand, have been moving at snail’s pace, with National Reconstruction Authority struggling to prepare reconstruction and rehabilitation plans.

Also, there has been no substantial uptick in the government’s regular capital spending, which has largely kept private investment at bay.

All these problems are expected to push Nepal to the third lowest rung of the economic growth ladder in Emerging and Developing Asia in this fiscal year, the IMF report shows.

In the group, which comprises 29 economies, Nepal is only above Mongolia, which is likely to post a growth of 0.4 per cent, and Brunei Darussalam, whose economy is expected to contract by two per cent this year.

While Nepal’s growth is expected to suffer this fiscal, consumer prices are likely to increase by 10.2 per cent, the highest in Emerging and Developing Asia, shows the IMF report.

Such a jump in prices of goods and services will make Nepalis feel poorer because their income is not expected to go up in line with expenses.