Nepal | July 02, 2020

Nepal’s economy to grow by 6 per cent for next three years

Himalayan News Service
Share Now:

Rising revenue potential of sub-national governments will be critical though

Kathmandu, October 7 

The country’s economy is projected to achieve an average six per cent growth in the next three years, however the performance could be less impressive if the challenging transition to a federal system affects infrastructure provision and service delivery, according to South Asia Focus 2018, a report published by the World Bank.

Despite limited resources available for infrastructure financing and public service delivery, the Nepali economy has been growing at a stable rate. To sustain investment and maintain high levels of growth, additional private sector resources and engagement – including foreign direct investment (FDI) – are needed, as per the report.

“This necessitates timely implementation of reforms to support an enabling environment for the private sector and to increase foreign investment.”

The service sector has been witnessed as a key sector to boost growth. Services were the main driver contributing 3.6 percentage points, over 60 per cent of which came from trade and hotels, the report states. “For industry, over 90 per cent of growth came from construction and manufacturing. On the demand side, investment and private consumption were the main drivers of growth,” as per the report.

The report further said that the federal structure will be particularly important to enhance implementation capacity and revenue potential at sub-national levels of government. Raising revenue potential of sub-national governments will be critical as will be their capacity to implement their projects and programmes.

Overall, taxes on rising imports, luxury items and incomes of wealthier households, including a broadening of the tax base, will help increase revenue to 29 per cent of gross domestic product (GDP) over the medium term, as per the report. The government has set a revenue collection target of Rs 945.56 billion in this fiscal 2018-19 compared to Rs 730.05 billion of the previous fiscal 2017-18.

The World Bank report has mentioned that the fiscal budget of ongoing fiscal includes investments to promote improved inputs and storage facilities for farmers, including for irrigation. “These investments focus on modernisation, commercialisation, mechanisation and the expansion of value chains. As these programmes ramp up, agriculture sector growth is expected to increase from 2.8 per cent to 4.5 per cent in the next fiscal,” as per the report. Similarly, number of foreign tourists is expected to increase as the country has launched the ‘Visit Nepal 2020′ campaign.

Growth will be supported by key infrastructure projects and includes linking completed hydro projects to the transmission grid. A new large private cement factory – Hongshi Shivam Cement – is expected to boost construction activities, while the agreement to build a second cement factory with Chinese investment will likely enhance FDI in the next fiscal year, according to the report. “Growth in industry and services is projected to average eight per cent and six per cent respectively, as infrastructure constraints are eased, and capacity utilisation expanded.”

The World Bank report has projected inflation can be controlled at five per cent over medium term, assuming oil prices rise, and the exchange rate depreciates.

Despite strong import demand and currency depreciation, export performance remains disappointing while imports are still growing rapidly and the country’s current account deficit is widening, however, the report expects the current account deficit to gradually improve as import growth moderates.

“The government is shifting from consumption to investment-based growth, with emphasis on engaging the private sector and raising the very low levels of FDI. In addition to infrastructure investments, key reforms will include establishing public private partnerships, one-stop investor services, and e-government services for citizens,” says the report.

“Consolidated spending of government is expected to reach 34 per cent of GDP over the medium term (versus 28 per cent in fiscal 2017-18), with three per cent to four per cent of the increase from federalism alone. Transfers to sub-nationals are expected to increase by four percentage points to reach six per cent of GDP by 2020-21,” the report states.

The report has also underlined some risks in the economy like slow implementation of reforms.

A version of this article appears in print on October 08, 2018 of The Himalayan Times.

Follow The Himalayan Times on Twitter and Facebook

Recommended Stories:

More from The Himalayan Times:

NASA TV go live with their ISS spacewalk broadcast

KATHMANDU: NASA is broadcasting live International Space Station (ISS) expedition on a SpaceX’s Crew Dragon, being performed by NASA astronauts Chris Cassidy and Robert Behnken today, at 10:00 UTC (6:00 am EDT/ 3:45 pm in Nepal). The astronauts are scheduled to depart the ISS’s Quest airlock Read More...

Gandaki Province's coronavirus infection cases tally nears 1000

POKHARA: Gandaki Province is fast approaching the 1000 mark with 28 additional cases of the coronavirus infection being detected today. The new cases were confirmed through tests conducted at the National Public Health Laboratory (NPHL) in Kathmandu, Pokhara Health Science Academy, Pokhara and Bh Read More...

Dybala solo goal, Ronaldo rocket set up Juve win

GENOA: Juventus secured a 3-1 win at lowly Genoa on Tuesday to stay four points clear at the top of Serie A thanks to a solo goal by Paulo Dybala, a long-range rocket from Cristiano Ronaldo and an exquisite curling shot by Douglas Costa. Genoa held out defiantly until halftime with goalkeepe Read More...

Hong Kong police move swiftly against protests to enforce new law

New Hong Kong security law comes into force Hundreds defy police ban to protest new law Suspects arrested by Chinese agents may face mainland trial Pro-Beijing politicians welcome city's 'second return' BEIJING/HONG KONG: Hong Kong police moved swiftly on Wednesday against protesters Read More...

Hong Kong police make first arrest under new security law

HONG KONG: Hong Kong police made their first arrest under a new national security law imposed by China's central government, arresting a protester Wednesday for carrying a flag calling for Hong Kong's independence. The man was arrested after police had issued multiple warnings to the crowd at a p Read More...

PM Oli holds meeting with his ministers, excluding a few

KATHMANDU: Prime Minister KP Sharma Oli held discussions with the Ministers in his government at his Baluwatar residence, today. At the meeting, the subject of top-leaders of ruling Nepal Communist Party (NCP) demanding the PM's resignation during Tuesday's Standing Committee meeting was broadly Read More...

NCP Standing Committee meeting postponed after over one hour of discussion

KATHMANDU: Standing Committee meeting of the ruling Nepal Communist Party (NCP) has been postponed until tomorrow. The meeting was halted after five members of the committee expressed their views. Leelamani Pokharel, Matrika Yadav, Yogesh Bhattarai, Peshal Khatiwada and Nandu Prasain expressed th Read More...

Mickey Mouse fans 'over the moon' as Tokyo Disney reopens

TOKYO: Tokyo Disney Resort welcomed visitors on Wednesday for the first time in four months after being closed due to the coronavirus, with fans practising social distance as they returned to see Mickey Mouse and other beloved characters. Visitors in face masks queuing on floor marks clapped as t Read More...