Kathmandu, January 11:

With more than 12,000 people killed and 100,000 displaced, 10-year long Maoist insurgency has not just had a human impact, it has also slowed the poor country’s ailing economy, according to the Asian Development Bank (ADB).

“If the conflict is allowed to continue, there will be a lot more social and economic losses. Many more lives will be lost and many more people will be denied the opportunity to improve their livelihood,” Sultan Hafeez Rahman, Nepal’s ADB country director said Wednesday.

In the 1990s, Nepal’s annual economic growth averaged around a healthy 4.9 per cent but the escalating insurgency saw this drop to an average of 1.9 per cent between 2002 and 2004.

“Given that this conflict is persisting, and that there are chances it might actually deteriorate, Nepal could lose significantly more than two percentage points of gross domestic product (GDP) per annum,” Rahman said.

“This has very serious implications for not just total gross domestic product and its distribution but also for reduction in poverty in the country.”

With 31 per cent of the population living below the absolute poverty line and with an average income of just less than $300 per year, the troubled Himalayan kingdom cannot afford this loss.

Nepal needs to get economic growth and poverty eradication back on track, and this cannot happen without peace, the ADB official said.

An ADB report focused on the fall in development spending in Nepal as a way of measuring economic decline and concluded that in a “high conflict” situation, Nepal could see a gross domestic product growth loss of 10.3 percentage points over the next five years.

If the conflict continues at its current level, the growth loss would total 8.3 percentage points, according to ADB economists.

“If you are looking at the gross domestic product in per capita terms actually the results are much more stark because Nepal’s population growth is two percent, so if the economy grows at two percent, let’s say, then per capita gross domestic product growth is zero.

This is what happened last year,” Rahman said, “Nepal could continue to be in a situation where there would be very little economic growth at all.”

Remittances from overseas Nepalese workers have been a saving grace for the country but the millions of dollars sent home by Nepal’s estimated 1.2 million migrant workers every year cannot match the conflict-related loss.

“Remittances have helped but they cannot nearly offset investment numbers; the orders of magnitude are very different,” the ADB country director said. Aside from the economic growth loss, the human toll caused by the conflict has an economic fallout, said Rahman.

“The economic costs of people having died, and people having been displaced from their homes, people who have been handicapped, this takes away not just output today, but output in the future, potential output of the economy.”

The solution is simple, according to Rahman. A credible peace dialogue would restore investor confidence and boost markets.

“Once this happens I think that economic activity will tick back. In a very short period of time it can reach growth rates of six percent or more and if they are serious, over a time horizon of maybe 15 years, they can do as well in per capita terms as any South Asian country.”