IMF warns of negative growth

Kathmandu, November 19

Nepal may not be able to register a positive growth in this fiscal year if trade disruption is not resolved soon and comprehensively, the International Monetary Fund (IMF) has said.

“In recent weeks, in the absence of viable alternative ways for Nepal to secure adequate fuel in the short term, economic activity has been slowing markedly,” says a statement issued by the IMF. “To the extent that the trade disruption is not resolved soon and comprehensively, it will be increasingly difficult for overall economic activity to catch up and register positive growth in this fiscal year.”

Earlier, the IMF had estimated Nepal’s economic growth to stand at 4.4 per cent in the current fiscal. That prediction was made on assumption that government’s capital spending would increase markedly and reconstruction works would begin in full swing.

The government has allocated Rs 91 billion for reconstruction of structures damaged by earthquakes of April and May in this fiscal. Because of allocation of such a huge amount, the size of the annual budget of this fiscal year had swollen by 32.57 per cent to Rs 819.47 billion. Yet, funds allocated for reconstruction have not been utilised so far. This is partly because of prolonged trade disruption which has resulted in a fuel crisis.

While the fuel shortage has affected reconstruction spending, it is also likely to create a humanitarian crisis.

“With winter approaching and shortages of essential supplies worsening, the near-term outlook for Nepal’s population is becoming bleak, particularly for those who became homeless as a result of the earthquakes,” says the IMF statement. Further, fuel shortages are ‘affecting the delivery of emergency supplies to remote regions affected by the earthquakes’.

The disruption to transportation and trade routes to and from the southern border started two days after the September 20 promulgation of the new constitution. All

petroleum products consumed in Nepal are imported from India by trucks.

During the last fiscal year, oil imports represented 15 per cent of Nepal’s total goods imports, amounting to $1.1 billion or 5.3 per cent of GDP.

Nepal Oil Corporation (NOC) is the sole supplier of petroleum products in Nepal and Indian Oil Corporation (IOC) is NOC’s sole supplier. With fuel transports into Nepal coming to a virtual halt, NOC announced in late September that only limited amounts of fuel would be supplied for private vehicles, to slow the drawdown of Nepal’s limited petroleum reserves.

Because of the unavailability of fuel and other essential inputs, industrial production and tourism sector have been badly affected. Also, government revenue collection, particularly customs revenue, has fallen considerably. And so has government spending.