• Rendezvous

In its recently unveiled twice-a-year regional update titled 'South Asia Economic Focus', the World Bank sharply revised up the growth projection of Nepal's gross domestic product for the current fiscal year to 2.7 per cent from its earlier projection of 0.6 per cent in October. Hans Timmer, World Bank's chief economist for the South Asia region, shared with The Himalayan Times his insights on the findings of the report as well as the opportunities and challenges that lie ahead as the country attempts to recover from the coronavirus-induced recession. Excerpts:


The report has projected Nepal's GDP to grow by 2.7 per cent in the fiscal year 2021-22 and recover to 5.1 per cent by 2023. Don't you think it is quite optimistic considering the rising number of COVID cases and the current political scenario?

Nepal is coming out of its first recession in 40 years. After a contraction of GDP a bounce back to positive growth is very likely. But indeed, numerous challenges exist. As a result, the projected growth is far below potential growth, which is around six per cent for Nepal. According to the forecast, per-capita GDP will only in fiscal year 23 be back to its level in fiscal year 2019.

The report has mentioned that 'COVID-19 has magnified the underspending problem in Nepal'. Could you please elaborate?

Execution rates of public investment projects have been low for some time in Nepal. In fiscal year 2020 government investments declined for the third year in a row. COVID-19 made it even more difficult to bolster public investments, because revenues declined, short-term relief spending was needed, and lockdown measures made investment projects more difficult. We have seen in all countries in the region that governments shifted away from long-term investment projects because of the pandemic.

Economists have long flagged Nepal's over-dependence on remittances. But the report has stated that remittances are a reliable source of financing not just for recipient households but also at the country level. What is your say on this?

Remittances are indeed more stable than other sources of foreign finance, even with the recent volatility in remittances inflows. But that does not mean that reliance on remittances is without complications. Because of the large inflow of remittances, domestic consumption is high relative to domestic production capacity. As a result, it is difficult for Nepal to be competitive in export markets. That is a problem, because for long-term productivity growth Nepal needs an internationally competitive production sector.

While the employment shocks have hit men and women alike during this pandemic, the impact on women will likely last longer, says the report. Why is this so?

That probably has to do with norms. We see in Nepal and throughout the region that when jobs are scarce, priority is given to men to fill the vacancies. So, while men and women were equally likely to have lost their job, men are more likely to return to work when jobs open up again.

What is your assessment of the situation facing Nepal?

In the last decade, Nepal has experienced political unrest and major natural disasters, while it is implementing an ambitious shift to a federal system. With this background, the pandemic is an even greater challenge than for other countries. It is encouraging to see that Nepal made an early start with vaccination and is ahead of other countries in the region in the percentage of the population that has been vaccinated. But the challenges ahead are still enormous, both in overcoming the pandemic and in bringing the economy back to strong, equitable, and sustainable growth. We are eager to support Nepal in achieving these goals.

What are your recommendations to chart a path towards a more equitable and robust recovery?

An important part of a recovery strategy is to integrate the informal sector more into the economy. This crisis has shown that informal workers were vulnerable, with little protection. Digital technologies can increase credit to small firms and provide access to markets through e-commerce platforms. That will raise productivity and resilience in informal sector, while it also increases tax base. These are key elements for an equitable and robust recovery.

A version of this article appears in the print on April 05, 2021, of The Himalayan Times.