Nepal | August 07, 2020

WB projects economy to grow at 7.1pc in current fiscal year

Himalayan News Service
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Kathmandu, October 13

The World Bank has projected Nepal’s economy to grow at 7.1 per cent in the ongoing fiscal year, primarily driven by private investment and consumption, as per the Economic Update of the World Bank.

However, the World Bank has projected a slowdown in Nepal’s economy in the upcoming two fiscal years in line with a global downward trend. The World Bank has estimated Nepal’s economy to grow at 6.4 per cent in fiscal 2020-21 and at 6.5 per cent in 2021-22. As per the World Bank, economic growth in South Asia is projected to slow to 5.9 per cent in 2019, down 1.1 percentage points from April 2019 estimates, casting uncertainty about a rebound in the short term.

The South Asia Economic Focus, Making (De)centralisation Work, states that strong domestic demand, which propped high growth in the past, has weakened, driving a slowdown across the region. Imports have declined severely across South Asia, contracting between 15 and 20 per cent in Pakistan and Sri Lanka. In India, domestic demand has slipped, with private consumption growing 3.1 per cent in the last quarter from 7.3 per cent a year ago, while manufacturing growth plummeted to below one per cent in the second quarter of 2019 compared to over 10 per cent a year ago, as per the report.

On the supply side in Nepal, growth will be driven by services, underpinned by steady remittance inflows and high tourist arrivals. The latter will be supported by the Visit Nepal 2020 programme, the completion of the second international airport, and the construction of big hotels, states the World Bank report. On the demand side, investment and government consumption are expected to be the main drivers of growth. Public consumption will be supported by increased spending on salary and goods and services.

The World Bank report also projects rise in inflation rate marginally with higher public sector wages, increases in import duties on agricultural and industrial goods, and the removal of value added tax exemptions on some intermediate goods and services.

However, the World Bank says that the country’s current account deficit is likely to moderate to 5.9 per cent of GDP by 2020-21, as spending on federalism-related infrastructure and post-earthquake reconstruction tapers down and the government starts implementing a work plan for encouraging export-oriented and import-substituting industries.

Meanwhile, the report has said that the persistently high trade deficits would raise the risks to the external sector, especially if remittance growth slows down due to geopolitical tensions in migrant receiving countries and uncertain oil prices. Similarly, lower remittances could also impact the liquidity in the financial system.

“Declining industrial production and imports, as well as tensions in the financial markets reveal a sharp economic slowdown in South Asia,” said Hartwig Schafer, World Bank vice president for the South Asia Region.

“As global and domestic uncertainties cloud the region’s economic outlook, South Asian countries should pursue stimulating economic policies to boost private consumption and beef up investments.”

 


A version of this article appears in print on October 14, 2019 of The Himalayan Times.


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