Nepal | August 12, 2020

Adequate space to ramp up borrowing: ADB

Says country’s fiscal policy needs to be more prudent, yet expansionary in coming years

Himalayan News Service
Share Now:
Source: ADB

Source: ADB

Kathmandu, September 3

Nepal has adequate space to ramp up borrowing to post higher economic growth rate in the coming years, without jeopardising fiscal sustainability, the Asian Development Bank (ADB) has said.

The ADB’s Macroeconomic Update launched today states that the country can continuously post economic growth rate of seven per cent per annum for eight years from fiscal year 2017-18 to fiscal 2024-25 if borrowing is gradually raised to 40.6 per cent of the gross domestic product (GDP) by 2024-25.

With this borrowing, the country’s primary balance — fiscal balance before interest payment on public debt — will stand at a negative of 4.1 per cent of the GDP in between fiscal 2017-18 and fiscal 2024-25, as against existing primary surplus of 1.6 per cent of the GDP.

Since Nepal’s weighted average real borrowing rate — which stands at a negative of 0.1 per cent — is much lower than the GDP growth rate, a small primary deficit will not jeopardise fiscal sustainability, says the ADB report. Also, public debt of around 40 per cent of the GDP is considered fiscally sustainable.

These scenarios pave the way for the country to ‘increase borrowing to a fiscally prudent level to finance productivity-enhancing capital investment’, adds the report. Nepal’s outstanding public debt has been declining over the years, reaching 25.6 per cent of the GDP in the last fiscal year, which ended on July 16.

The declining stock of public debt generally indicates sound public debt management. But this has come at a cost of low capital expenditure, which does not bode well for a country with huge infrastructure deficit, especially in energy and transport sectors.

In the last fiscal year, capital spending stood at 3.8 per cent of the GDP, as against the estimate of 5.5 per cent of the GDP made at the beginning of the fiscal.

One of the reasons for low capital spending or fund absorptive capacity, according to the ADB, is lack of project readiness, such as delay in detailed project design, land acquisition, establishment of project management offices and preparation of procurement plans.

Also, delay in budget approval, budget release and execution of procurement related processes, coupled with weak planning and implementation capacity have affected capital spending.

“In the context of damage caused by the earthquake and large investment needed to close the infrastructure gap, Nepal needs to drastically raise capital spending.

Else, the government’s overarching goal to become a middle-income country by 2030 will not be achieved,” the ADB report says, adding, “Given that tax revenue is barely sufficient to finance reconstruction projects and the compulsion to borrow more from internal and external sources to finance reconstruction projects, the country’s fiscal policy needs to be more prudent, yet expansionary in the coming years.”

Growth projection

KATHMANDU: The Asian Development Bank (ADB) estimates the country’s economic growth to stand between 4.5 per cent and 5.5 per cent in the current fiscal year.

These targets are lower than the government’s estimate of six per cent.

The ADB has said higher growth would largely depend on agricultural output and spending on reconstruction of infrastructure damaged or destroyed by the earthquakes of April and May.

The ADB estimates inflation to stand in between 8.5 per cent and 9.5 per cent this fiscal. The government’s inflation target stands at 8.5 per cent.


A version of this article appears in print on September 04, 2015 of The Himalayan Times.


Follow The Himalayan Times on Twitter and Facebook

Recommended Stories:

More from The Himalayan Times:

Four of a family dead as house collapses in Doti

DOTI: Four members of a family were killed after their house collapsed in Adharsha Rural Municipality-1 of Doti District on Monday night. The deceased have been identified as Loke Luhar, his wife Bishna (35), son Paras (11), daughter Siru (7) and Jenisha (4), informed Deputy Superintendent of Read More...

849 passengers arrive on last day of fourth phase of repatriation

KATHMANDU, AUGUST 10 A total of 849 Nepalis were evacuated today via five flights. According to Tribhuvan International Airport (TIA), Nepal Airlines Corporation (NAC) evacuated 151 passengers and Himalaya Airlines repatriated 149 passengers from Doha in Qatar. Himalaya Airlines also brought h Read More...

Lebanese government resigns after Beirut blast, public anger

BEIRUT: Lebanon’s prime minister stepped down from his job Monday in the wake of the catastrophic explosion in Beirut that has triggered public outrage, saying he has come to the conclusion that corruption in the country is “bigger than the state.” The move risks opening the way to dragged- Read More...

Ramechhap farmers perform puja for rain

Ramechhap, August 10 At a time when continuous rainfall and attendant disasters have been causing loss of life and property in most parts of the country, farmers of Manthali, Ramechhap, are offering puja to god for rainfall so that they can cultivate paddy. As rainfall hasn’t occurred here t Read More...

Coronavirus infections stabilise in Australia's Victoria state

Victoria reports 331 new COVID-19 cases, 19 deaths NSW reports biggest one-day rise in cases since April SYDNEY: Australia's second-most populous state reported only a small rise in new COVID-19 infections on Tuesday, boosting hopes that case numbers are stabilising after a second wave f Read More...

Dengue

Don’t let COVID-19 overshadow the risk of dengue

The human race is currently going through a scourge of the COVID-19 pandemic, caused by a newly discovered coronavirus, SARS-CoV-2, which originated in Wuhan, China in December 2019. Since then, more than 200 countries have fallen victim to this virus. There are more than 4 million active cases acro Read More...

Antonio Banderas says he's tested positive for coronavirus

NEW YORK: Antonio Banderas says he's tested positive for COVID-19 and is celebrating his 60th birthday in quarantine. The Spanish actor announced his positive test in a post Monday on Instagram. Banderas said he would spend his time in isolation reading, writing and “making plans to begin to g Read More...

Ganges River flows with history and prophecy for India

ALONG THE GANGES: More than 2,000 years ago, a powerful king built a fort on the banks of India’s holiest river, on the fringes of what is now a vast industrial city. Today, little of the ancient construction remains, except for mounds of rubble that tannery workers pick through for bricks to b Read More...