Himalayan News Service

Kathmandu, May 20:

Economic activity in the country during the first half of 2005 has been adversely affected by the poor security situation and weather, according to a survey conducted by Asian Development Bank (ADB). The study shows that in Nepal, unfavourable weather limited agricultural production and a fall in tourist arrivals and suspension of telecommunication services suppressed service activity. A weaker performance in the industry sector – only one per cent growth rather than estimated 1.8 per cent – led to the downward revision. The revised growth rates of agriculture and service sector were 3.9 per cent and 4.3 per cent respectively, marginally higher than the initial estimates of 3.7 per cent and 4.2 per cent. Fiscal developments in the first half of 2005 remained satisfactory as revenue increased by 12 per cent with a healthier growth in customs tax, value added tax and income tax collections, states ADB’s quarterly economic outlook.

Government spending, however, during the same period was 4.6 per cent higher on account of better priority of government expenditures and higher cost of government projects. Overall, the budget recorded a surplus of Rs 1.5 billion in comparison to a deficit of Rs 2.5 billion in the same period last year. Credit to the private sector picked up in second quarter of 2005 and helped reduce the excess liquidity in the banking sector. Average inflation increased to 3.5 per cent in the second quarter from 2.5 per cent in the first quarter of 2005. Below normal monsoon has adversely affected paddy production, which is likely to fall by about four per cent. However, the post monsoon weather conditions have been more favourable improving the prospects for winter crops.

The mid-term budget for 2005 released in mid-January, includes additional expenditure programmes of Rs 3.6 billion. Recurrent expenditures comprise of Rs 2.3 billion of the additional expenditure. (a 20 per cent allowance of the starting pay scale for government employees and new recruitments for the security forces. One billion rupees is allocated for capital expenditure.) ADB has categorically stated that political instability has a negative impact on the pace of reforms in the country. Four key economic legislations — Company ordinance, Insolvency ordinance, Secured transactions ordinance and Securities ordinances — needed to improve the functioning of the private sector are four years behind the schedule.