Not much to celebrate for the economy in 2019

Kathmandu, December 30

With only a day left before the year ends, a reflection on the past 12 months does not make 2019 a remarkable year for the country’s economy, as development activities failed to gather momentum while growth remained sluggish.

Against the government’s ambitious plan to achieve 8.5 per cent economic growth in fiscal 2019-20, indicators of the economy were not so encouraging though we are nearing the mid-point of the current fiscal year.

While budget implementation remained lethargic, policy implementation continued to be fragile and overall business environment was also not so impressive.

Low capital spending, sluggish development activities

There was not much to celebrate in 2019 when looked at through the economic lens, as per experts.

“Unperturbed by regional economic slowdown, expected annual growth of six per cent is positive. However, there were no major returns and the economy still remains sluggish and tepid,” opined senior economist Swarnim Wagle.

Minister for Finance Yubaraj Khatiwada had defended the slow economic growth in 2018-19 citing that the government throughout the year was focused on developing regulatory framework in line with federalism and the needs of the business community.

He had mentioned that with the completion of formulating necessary laws and policies in 2018- 19, focus would be given to effective budget implementation, development activities and economic growth in 2019-20.

However, the plague of ineffective budget implementation, slow project development and sluggish economic progress remained the same in 2019.

The government was unable to accelerate capital budget spending properly, which directly affects the pace of development activities. As per the statistics of Financial Comptroller General Office (FCGO), development expenditure of the government till today stood at mere 10.24 per cent of Rs 408 billion allocated for the fiscal 2019-20.

Along with this, a number of projects that were expected to be completed within 2019, including the Gautam Buddha International Airport and Melamchi Drinking Water Supply Project, among others, are still a work in progress.

Investor confidence still low

As per the Doing Business Report 2020 of the World Bank, Nepal has leapt to the 94th position out of 190 economies across the world against 110th position that Nepal was placed in the previous year. The report was in line with the government’s claim that business environment has improved in the country in recent years.

However, domestic private sector still refute that the business environment in the country has improved and have not hesitated to state that they have rather been losing confidence gradually owing to various restrictive policies of the government that have provisions of imprisonment even for minor mistakes.

Though formation of a stable government and reliable supply of electricity was a boon for the country, the business community still waits for its expectations to be fulfilled. Citing that the economy is still riddled with twin weaknesses — low private sector confidence and public expenditure — Wagle said that the economy was falsely comforted by the misleading jump in the Doing Business ranking.

Pressure on inflation

Against the government’s plan to keep inflation within five per cent in the ongoing fiscal year, the consumer price inflation stood at 5.76 per cent in mid-November compared to 4.15 per cent during the same period last year. The food and beverages inflation stood at 7.96 per cent with prices of vegetables, fruits, meat and fish surging significantly. Inflation had stood at an almost three-year-high of 6.95 per cent in mid-August due to sharp hike in food prices.

“At present, there is no factor that should lead to sharp price hikes. So, weak governance must be the main reason for it,” said economist Bishwo Poudel, suggesting the government to tighten market monitoring and discourage middlemen from taking undue benefits.

Falling remittance

As Nepal is a remittance driven economy, the constant fall in inflow of remittance is not a good sign for the economy, according to the experts. As per Nepal Rastra Bank (NRB) data, remittance inflows decreased by 2.3 per cent to Rs 304.97 billion until mid-November against an increase of 36.4 per cent in the corresponding period of the previous year.

However, the government is yet to analyse the actual reason behind the decline in remittance inflow.

As Nepal is one of the highest remittance recipients in the world with remittance comprising almost 30 per cent of Nepal’s GDP, experts have urged the government to take effective measures to deal with the issue.

Narrowing trade deficit, sound BoP position

Despite these discouraging factors, the economy did show some hope in the late months of 2019.

Few indicators like narrowing trade deficit and sound Balance of Payments (BoP) position of Nepal is commendable but measures should be taken to sustain them, as per economists.

The country’s total trade deficit narrowed down 8.9 per cent to Rs 414.02 billion in the four months of 2019-20 though such deficit had expanded 37.8 per cent in the same period of the previous year.

As per statistics of NRB, the country’s exports are increasing while imports are decreasing.

In the four months of 2019- 20, merchandise exports increased 23.9 per cent to Rs 36.28 billion compared to an increase of 11 per cent a year ago while merchandise imports decreased 6.9 per cent to Rs 450.3 billion against an increase of 35.8 per cent in the same period of the previous year.

Among others, statistics show that import of petroleum products, gold, aircraft spareparts and cement had been decreasing. Similarly, the BoP remained at a surplus of Rs 27.29 billion till mid-November against a deficit of Rs 57.33 billion in the same period of the previous year.

Economist Keshav Acharya said that though the economy was on the right track from 2017-18, the government had been unable to give continuity to this tempo in recent months. “Though the government has introduced a number policies citing it will improve the business environment in the country, investors are still suspicious over effective implementation of these policies,” he said.

“Moreover, a number of contradictory policies on tax issues and others have discouraged the business community.

Against this backdrop, the economy has not been able to achieve anything significant so far in the ongoing fiscal,” said Acharya.