Himalayan News Service

Kathmandu, March 13:

Economic growth is continue to decline and settle at three per cent in the fiscal year 2005, mainly due to the anticipated weaker performance of agriculture, tourism and transport sectors. However, economic growth beyond 2005 will solely depends on a speedy and lasting resolution of the ongoing insurgency, states Asian Development Bank (ADB) quarterly review.

It assumes that there will be no further deterioration of the conflict in 2005 and progress towards a lasting resolution in fiscal year 2006 and 2007. Based on assumptions, the GDP growth in 2006 is forecast at 3.7 per cent and 4.3 per cent in 2007. The lower remittance earnings in the first quarter of the fiscal year 2005 is partly due to disruptions following the killing of 12 Nepali workers in Iraq on September 1, according to the report.

Given the tepid performance of imports, the trade deficit narrowed from 3.9 per cent of GDP in the first quarter of fiscal year 2004 to 3.1 per cent of GDP in the first quarter of 2005, states the ADB survey. Reflecting on recent disruptions in these sectors, tourism receipts and worker remittances has declined by 19 per cent and seven per cent, respectively in the first quarter of the current fiscal year. Contrary to popular perceptions, the gains from free trade agreements (FTAs) are neither guaranteed nor automatic, states the ADB report. “They can be usually fruitful only in the sound economic environment. To negotiate well, a country needs to be aware of its strengths as well as its vulnerabilities. After seven years of conflict, Nepal’s industrial and manufacturing sectors are ill-placed to compete in the international market.”

In such a situation, Nepal should increasingly turn to providing services to developed economies, since this is where Nepal’s comparative advantage, at least in the short run, lies, suggests ADB. “Nepal should negotiate to increase access and opportunities for migrant labour in overseas economies, including a change in the current visa regime to facilitate free flow of services within comprehensive economic agreements,” it states. Exports, especially to countries other than India, face serious downfall over the next few years. Nepal has done well to gain membership of regional and international trading blocks such as the World Trade Organisation (WTO), the South Asian Free Trade agreement (SAFTA), and the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMST-EC). However, it hasn’t prepared adequately to compete in the free global trading system brought on by the expiration of the MFA and Nepal’s entry into these bilateral and multilateral trading arrangements.