Nepal’s GDP growth forecast lowest in Asia

Kathmandu, April 6:

Nepal in 2006 is likely to register only two per cent gross domestic product (GDP) growth rate, which is the lowest in Asia and the Pacific region, as per the report, ‘Asian Development Outlook (ADO-2006),’ that was released today by Asian Development Bank (ADB).

Nepal ranks third in the lowest GDP growth rate after Tonga 1.6 per cent and Micronesia one per cent, among 43 Asian nations.

While releasing the ADO-2006, Dr Sultan Hafeez Rahman, country director for Nepal Resident Mission of the ADB said that economic growth in Nepal slowed to 2.3 per cent in 2005 from 3.5 per cent in 2004. “It will further dip to two per cent in 2006,” says Rahman. However, in 2007, GDP growth will recover to 3.4 per cent. Rahman attributed fall in GDP growth rate to the decline in paddy production, low industrial growth, contraction of the tourism sector and sluggish public and private investment. Presenting a paper on Nepal’s economic outlook for 2006, Rahman said that weather has played spoil sport in both winter and summer crops, which will result in low agricultural growth.

However, according to him, slight rebound in tourism is expected, but high inflation reflecting full adjustments in oil prices and low agricultural production, and investment are unlikely to rebound.

For sustainable growth, Nepal has to expedite reforms, maintain macro-economic stability and expedite structural reforms, he suggested. As per the ADO, agriculture output grew by three per cent in 2005, contributing 1.2 per cent to GDP growth. The achievement is quite fair despite the fact that paddy production — which accounts for almost 20 per cent of agricultural GDP — fell by 3.7 per cent due to a poor monsoon, and a decline in cultivated area.

Industrial output grew by only 1.4 per cent in 2005, bearing the burnt of frequent strikes and restrictions on the movement of people and goods – general unrest that also affected services output and investment, stated the report. Construction (about 50 per cent of the industry) was particularly hit hard and fell by 0.4 per cent. Similarly, manufacturing (about 40 per cent) expanded by 2.6 per cent, but the gain was still much lower than the average of 7.5 per cent in less turbulent decade before 2001. Services sector growth fell sharply to 2.4 per cent in 2005, though the sector contributed one per cent to the GDP expansion. The slowdown was caused entirely by a 2.6 per cent conflict-linked decline in trade and tourism sub-sector. However, both public and private investment remained sluggish as large infrastructure and hydropower project investments are stalled by security problems, states the report.

Total debt service in 2005 rose to Rs 19.8 billion, representing a heavy fiscal burden at almost a third of total government revenue according the ADB outlook. “Burgeoning debt servicing is of particular concern given recent years’ sharp fall in foreign loan financing. Security outlays increased to Rs 17.5 billion in 2005, to account for about one fifth of total government spending.”

Inflationary pressures increased in the second half of 2005 with the year-on-year rate in mid-July (end FY 2005) at 6.6 per cent, compared with a 4.5 per cent average for the year, thanks to increases in the prices of petroleum products, rice, VAT rate, as well as civil servants’ salaries. What ADO states in its report is that in response to accelerating inflation and the rising interest rate differential with India, Nepal Rastra Bank (NRB) departed from the accommodative monetary policy and announced measures for tightening monetary policy for 2006.

“Developing countries with small markets, which already face significant difficulties in getting their goods into the international marketplace are poorly positioned in the race to link up through new trade deals,” Ifzal Ali, chief economist of the ADB was quoted as saying, “The trend toward bilateralism could easily leave these poor countries even more marginalised.”

Azerbaijan, which lies in central Asia is likely to register 30.5 per cent GDP growth rate in 2006, the highest projection among Asian countries. The average GDP growth in Asia stands at 7.2 per cent as per the ADO 2006.

Asia’s developing economies to slow

MANILA: Growth in Asia’s developing economies will slow down but stay robust at 7.2 per cent this year, from 7.4 per cent in 2005, but the outlook could worsen due to bird flu fears and high oil prices, the ADB said today.

In its 2006 outlook, the Manila-based bank raised its forecast for developing Asia’s gross domestic product (GDP) growth this year to 7.2 per cent from 6.6 per cent in its September update.

For 2007, the region’s economy is expected to grow at a slower seven per cent. “By historical standards, these growth rates in developing Asia are robust,” the report stated.

Forecast growth for Southeast Asia was raised to 5.5 per cent from September’s 5.4 per cent. — AFP

Growth projections for 2006

Nepal 2.0 per cent

Sri Lanka 5.3 per cent

Bangladesh 6.5 per cent

Pakistan 6.5 per cent

India 7.6 per cent

Vietnam 8.0 per cent

China 9.5 per cent

Afghanistan 11.7 per cent

Azerbaijan 30.5 per cent

Micronesia 1.0 per cent