Tarai turmoil raises downside risks to growth outlook
Kathmandu, November 2
The figures of the first two months of current fiscal year paint a dismal picture and point towards a growing challenge in achieving the economic growth projection of six per cent for fiscal year 2015-16.
While the underlying assumptions of the growth projection were acceleration in reconstruction works and a significant increase in overall capital expenditure by the Nepal government, there was nil progress in either front in the first two months.
The foreign trade of Nepal has been affected due to the strike in Tarai-Madhes region as well as disturbances at the custom points between Nepal and India, according to the latest macroeconomic data released by Nepal Rastra Bank (NRB). Moreover, the main two customs points of Nepal with China were also not in operation during the review period. However, the level of foreign exchange reserves climbed up on account of the decrease in imports and upsurge in transfer income.
Merchandise exports saw a significant fall of 15.2 per cent to Rs 12.24 billion in the first two months of 2015-16 compared with a drop of 4.8 per cent to Rs 14.43 billion in the same period of previous year. The total exports decreased due to a fall in exports to India, China and other countries in the review period.
Likewise, merchandise imports decreased by 17.5 per cent to Rs 103.95 billion. Such imports had gone up by 20.5 per cent to Rs 126.02 billion in the same period of previous year. The slowdown in imports is attributed mainly to a decrease in imports of petroleum products, among others, as well as problem in supply side due to strike in Tarai-Madhes region, as per the report.
Hence, total trade deficit during the review period decreased by 17.8 per cent to Rs 91.71 billion compared to an increase of 24.9 per cent in the same period of previous year. Trade deficit with India and other countries decreased by 19.6 per cent and 26.8 per cent, respectively.
The exports-imports ratio reached 11.8 per cent in the review period on account of a fall in imports. Such ratio had remained at 11.4 per cent in the same period of previous year.
Meanwhile, the remittances inflow increased by 27.5 per cent to Rs 107.67 billion in the review period in contrast to a decrease by four per cent in the same period of previous year. In US dollar terms, the remittances increased by 18.7 per cent to $1.03 billion in contrast to a decrease by 1.1 per cent in the same period of the previous year.
The current account registered a surplus of Rs 38.48 billion during the review period as against a deficit of Rs 9.33 billion in the same period of previous year. The surplus of current account is mainly attributed to the decrease in merchandise import, increase in remittances and grants, among others.
The overall balance of payments — the difference in total value between payments into and out of the country — showed a surplus of Rs 32.06 billion in the review period compared to a deficit of Rs 744.4 million in the same period of previous year.
Tourism, hotels, transportation and educational activities were all adversely affected during the review period. The agricultural sector also suffered from supply disturbances of chemical fertilisers, pesticides and impeded market access of agro-products due to continuous strikes and blockade in trade routes in southern parts of the country.
Also, the construction of major hydropower projects which were stalled due to the April earthquake, has not yet resumed. Likewise, the construction of infrastructure projects such as roads and irrigation has been negatively affected due to the shortage of fuel. The industrial sector has also been adversely affected on account of the shortage of fuel and necessary raw materials.
These developments are likely to pose the downside risks to the growth outlook for 2015-16, the NRB report