KATHMANDU, OCTOBER 8
Nepal’s economy is projected to grow by only 0.6 per cent in 2020-21, inching up from an estimated 0.2 per cent in 2019-20 as lockdowns caused by the COVID-19 crisis disrupt economic activity, especially tourism, says the World Bank’s latest South Asia Economic Focus.
While the change for fiscal 2019-20 is 6.2 percentage points, the downward revision for the current fiscal is 5.9 percentage points compared to the forecast made in October last year.
|REAL GDP AT MARKET PRICES IN PER CENT||REVISION OF FORECASTS FROM OCTOBER 2019 IN PER CENT|
|Country||Fiscal year||2019 (e)||2020 (f)||2021 (f)||2022 (f)||2019 (e)||2020 (f)||2021 (f)|
|Afghanistan||December to December||3.9||-5.5||2.5||3.3||1.4||-8.5|
|Bangladesh||July to June||8.1||2||1.6||3.4||0||-5.2|
|Bhutan||July to June||3.8||1.5||1.8||2||-1.2||-5.9|
|India||April to March||6.1||4.2||-9.6||5.4||-0.7||-1.8||-16.8|
|Maldives||January to December||5.9||-19.5||9.5||12.5||0.7||-25|
|Nepal||mid-July to mid-July||7||0.2||0.6||2.5||-0.1||-6.2|
|Pakistan||July to June||1||-1.5||0.5||2||-2.3||-3.9|
|Sri Lanka||January to December||2.3||-6.7||3.3||2||-0.4||-10|
e: estimate; f: forecast / Source: World Bank
The report paints a grim picture of how the COVID crisis has derailed Nepal’s growth momentum. Nepal had recorded an average growth of 7.3 per cent in the three years prior to the pandemic.
The growth projection of the World Bank for Nepal is significantly lower than the seven per cent growth target set by the government through the budget of the current fiscal.
“The economic consequences of the pandemic and impact on livelihoods across Nepal is expected to be the most acute for informal workers or those without social security or assistance, who are more at risk of falling into extreme poverty,” said Faris Hadad-Zervos, World Bank country director for Nepal, Maldives and Sri Lanka. “Swift action is needed to provide incomes, social protection and employment to support them.
This includes key investment climate reforms to promote physical infrastructure and access to finance for the informal sector to shorten the transition to recovery.”
Informal businesses make up around 50 per cent of enterprises in Nepal and are the main source of income for most of the labour force. Within this group, urban informal sector workers and self-employed households in urban areas are more vulnerable than rural households who can fall back on subsistence farming. Most informal firms operate with limited savings, and owners may face the difficult choice of staying home and facing starvation during the lockdown or running their business and risking infection.
These scenarios accentuate financial difficulties, as well as the spread of COVID-19, the World Bank has said.
The report adds that should COVID persist, continued disruptions and weak sub-national capacity to implement relief spending could weaken Nepal’s growth to 0.1 per cent in the current fiscal, likely increasing poverty. But if an effective vaccine becomes available, growth could recover to two per cent. A protracted recovery is expected into fiscal 2021-22, assuming a gradual retreat of the pandemic.
Released today, the twice-ayear-regional update notes that South Asia is set to plunge this year into its worst-ever recession as the devastating impacts of the pandemic on the region’s economies linger on, taking a disproportionate toll on informal workers and pushing millions of South Asians into extreme poverty.
The report forecasts a sharper than expected economic slump across the region, with regional growth expected to contract by 7.7 per cent in 2020, after topping six per cent annually in the past five years. Regional growth is projected to rebound to 4.5 per cent in 2021. Factoring in population growth, however, income-per-capita in the region will remain six per cent below 2019 estimates, indicating the expected rebound will not offset the lasting economic damage caused by COVID.
In previous recessions, falling investment and exports led the downturn. This time is different as private consumption, traditionally the backbone of demand in South Asia and a core indicator of economic welfare, will decline by more than 10 per cent, further spiking poverty rates. A decline in remittances is also expected to accelerate loss of livelihoods for the poorest in some countries.
The report urges governments to design universal social protection, as well as policies that support greater productivity, skills development and human capital.
In that effort, securing international and domestic financing will help governments fund crucial programmes to speed up recovery. In the long term, digital technologies can play an essential role in creating new opportunities for informal workers, making South Asia more competitive and better integrated into markets — if countries improve digital access and support workers to take advantage of online platforms.
“COVID will profoundly transform Nepal and the rest of South Asia for years to come and leave lasting scars on its economies. But there is a silver lining towards resilient recovery: the pandemic could spur innovations that improve SA’s future participation in global value chains, as its comparative advantage in tech services and niche tourism will likely be in higher demand as the global economy becomes more digital,” said Hans Timmer, World Bank chief economist for the South Asia region.
A version of this article appears in print on October 09, 2020 of The Himalayan Times.
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