Inflation projected at 5.5pc in 2005

Himalayan News Service

Kathmandu, April 25:

A survey undertaken by the United Nation Economic and Social Commission for Asia and the

Pacific (UN-ESCAP) has found that Nepal’s inflation would hover at about 5.5 per cent in the current year. Launching a UNESCAP report today before journalists, economist Murari Prasad Upadhyaya of Centre for Policy and Research Analysis (CEPRA), said that inflation declined to four per cent in 2004, from 4.8 per cent the previous year, owing to an easing of price pressures on food. He however, informed that the rate of inflation in 2005 is projected to increase to 5.5 per cent owing to higher food and energy prices. Upadhyaya said that despite an upward adjustment in administered petroleum prices in 2004, domestic prices of petroleum are still low compared to international prices, adding to the losses at the Nepal Oil Corporation (NOC). “The rate of appreciation of the Nepali rupee against the dollar slowed to 1.7 per cent in 2004 from four per cent a year earlier. Despite the nominal appreciation, the real exchange rate remains broadly competitive.”

Ram Babu Shah, national information officer of United Nations Information Centre (UNIC), said that since the report was completed by December 2004, the impact of political development of February 1 move on the economy has not been reflected in the UNESCAP report. Since the ESCAP’s headoffice in Bangkok prepared the report, the data given therein may vary from the data available in Nepal, said Shah. UNIC in cooperation with CEPRA launched the report today. Upadhyaya informed that the real GDP growth increased from 3.1 per cent in 2003 to 3.7 per cent in 2004 owing to stronger growth in agricultural and services.

“Agriculture benefited from a favourable monsoon, increased road connectivity and a smooth supply of fertilisers following private sector involvement in fertilizer distribution.” As per the UNESCAP report, the industrial sector was adversely affected by the increasing lack of security

in rural areas, which dampened construction activity.

High petroleum prices, the ending of the multi fibre agreement (MFA) and the continued armed conflict within the country have led to the projected growth in real GDP of four per cent in 2005, below the 6.2 per cent envisaged in the Poverty Reduction Strategy Paper (PRSP). However, if external shocks are temporary and armed conflict is resolved, growth could be higher, given Nepal’s current physical, institutional and financial infrastructure, according to the report. The report also suggested that trade liberalisation is the key to improve resource allocation, economic growth and poverty reduction but export competitiveness is often hindered by high production costs, limited market access and a poor investment climate in many small, least developed countries.