Kathmandu, January 26:

The spiralling conflict in the country since 2001 has resulted in a loss of over three percentage point in gross domestic product (GDP) as of 2004 which is forecast to only worsen in future.

According to a study of Asian Development Bank (ADB) for 2005, conflict is going to incur a loss in GDP growth by two percentage point in 2006, which will go up further if ‘this’ situation continues unabated.

The recent decline in GDP growth rate to 2.33 percentage point in 2004-05 from the previous fiscal year’s 3.54 is also attributed to a dismal performance of development activities and low investment.

Showing serious concerns on the deteriorating GDP growth, Chandi Raj Dhakal, president of the Federation of Nepalese Chambers of Commerce and Industry (FNCCI) commented that more than 300 industries, mostly export-oriented ones like garment, hotels and manufacturing have already closed down due to ‘increased conflict’. This has resulted at a low GDP growth and further loss is also likely, Dhakal commented.

Unless the conflict is resolved, nothing fruitful would be realised, Dhakal said. A fall in GDP growth by 1.21 percentage point as per the data of Central Bureau of Statistics (CBS), the domestic industry will be discouraged and employment problems will increase further.

Prof Dr Bhuwan Bajracharya commented that due to increased conflict, capital expenditure seems very low that has affected the capital account as well. At the same time, investment has also gone down which means private investors are getting affected and GDP growth is also affected. If the current conflict continues, Dr Bajracharya said, GDP growth will see a loss by about three percentage point in days to come.

Dhakal demanded immediate remedy to save economy from further turmoil. Day to day, import of raw materials to be used by domestic manufacturing industries is dropping, said Dhakal. “Even the production of Nepal Lever Ltd (NLL) has been trimmed down, according to him. Therefore, future investments is unlikely,” he said.

As per the Asian Development Bank’s study, economic growth slowed to an average of 1.9 per cent during 2002-2004 compared to about five per cent in the decade preceding that period.

Conflict related disruptions such as strikes, security checks, blockades, shutdowns, and extortion have increased the cost of economic activity and contributed to an economic slowdown. ADB says, more than 400,000 people from rural families have been internally displaced while thousands others have crossed over to India in search of work.

Private investment has declined from 15.4 per cent in 1996 to 12.6 per cent in 2004 as foreign investors have stayed away and private investors have stopped from making investments.

ADB carried out a study on GDP growth loss due to conflict on the basis of five variables namely development expenditure, regular expenditure, revenue level, foreign loan estimates and exchange rate.

Dr Bajracharya urged for development expenditure to be expedited to see a higher GDP growth making way for a sound investment climate.