Kathmandu, April 5
Faris Hadad-Zervos, World Bank country director for Maldives, Nepal, and Sri Lanka, has explained that the situation facing Nepal and Sri Lanka are not the same and that the country can disabuse itself of that fear. Stating that the fundamental basics of net debt to GDP and gross financing needs of the two countries are totally different, he explained that Nepal is better positioned and has no need to fear.
Speaking at the briefing of Nepal Development Update (April 2023) published by the World Bank at a programme organised at Tribhuvan University today, Hadad-Zervos shared that the country's economy has faced unintended consequences of slowdown in global growth as well as pressures to address pressures on the external sector and that Nepal's commitment to Green, Resilient, and Inclusive Development has become more pressing than ever.
As per the World Bank's report, Nepal's economy is projected to grow by 4.1 per cent this fiscal year, a downward revision from the previously projected forecast due to the impacts of import restrictions, monetary policy tightening, higher inflation, and shrinking government expenditure reflecting lower government revenue.
"With the waning of COVID-19 cases, monetary policies and fiscal policies which were implemented during the pandemic were tightened over the past year-and-a-half. The mid-year budget review of the country saw fiscal revenues were reduced by almost three per cent of the GDP and fiscal expenditures were cut back by 4.2 per cent of GDP. While the government recognises that fiscal prudence is necessary in such a situation and that it comes at the cost of investments to advance development agendas, it is very difficult to balance it as there are tradeoffs in economics. The higher interest rates as a result of tightening monetary policy to slow credit growth and to tackle inflation also contributed to slow down in investment. Together, such changes have underpinned our current projection for the country's economy," he explained.
Hadad-Zervos also said that the World Bank is looking forward to working with the newly formed Cabinet to make sure that prioritisation, communication and implementation happens.
Presenting the report at the programme, Nayan Krishna Joshi, economist at the World Bank, shared that the industrial sector contracted in first half of fiscal year 2022-23 (mid-July 2022 to mid January 2023) and that the price of construction materials rose in the review period, while the net new credit to the construction sector fell. While transactions in the realty sector fell, the number of tourist arrivals increased suggesting positive growth in the service sector. Also, paddy production rebounded to 3.6 metric tonnes compared to the corresponding year suggesting expansion of the agriculture sector, Joshi said.
As per the report, growth is expected to accelerate to 4.9 per cent in fiscal year 2023-24, and 5.5 per cent in fiscal 2024-25.
Moreover, Toyam Raya, finance secretary at the Ministry of Finance, shared that the government is committed to resolving the internal fiscal pressures although the issues as a result of external factors have eased at present. "Following increase in tourist arrivals, remittance inflow, agriculture production and hydropower production, the country's economy has started to see some positive developments. We firmly believe that the country will be able to overcome problems with the support of everyone," he said.
He also explained that the government took different initiatives to address depleting foreign reserves as a result of external pressure on the economy, which has eased at the moment. "While the government had projected economic growth of eight per cent for the current fiscal, it had to revise down the budget due to evolving scenarios through the mid-term budget review. As pressure on the external sector continues to ease, we hope to see improvement in the revenue collection as well," he said.
A version of this article appears in the print on April 6, 2023, of The Himalayan Times.
