Nepal's Economy to Stabilize on Buoyant Domestic Demand
Nepal’s economy is anticipated to grow at 6.2% in
fiscal year (FY) 2019 and 6.3% in FY2020, says the latest Asian Development
Bank (ADB) Nepal Macroeconomic Update.
“The outlook is for a stable growth on the back
of strong domestic demand, fueled by a larger budget allocation to subnational
governments and accelerated post-earthquake reconstruction,” said
ADB Country Director for Nepal Mr. Mukhtor Khamudkhanov. “Challenges to
smooth implementation of fiscal federalism and maintaining fiscal discipline at
large could pose potential risks to the outlook. Nepal has the potential to
achieve and sustain higher growth rate over a long period of time if these
challenges are addressed.”
The agriculture sector will likely grow from 2.8%
in FY2018 to 4.5% in FY2019, owing to a good monsoon that is expected to boost
paddy production to 5.5 million tons, a rise of 8.4% from the previous year.
The industry sector is expected to expand by 7.1% in FY2019 buoyed by improved
electricity supply and efforts to improve the investment climate. And the
services sector will likely grow by 6.4% in FY2019 with the expansion of
wholesale and retail trade, hotels and restaurants, and financial
intermediation.
The update says inflation is projected to rise to
4.4% in FY2019 from 4.2% in FY2018, partly reflecting somewhat higher inflation
expected in India, stable oil prices, and higher government expenditures under
the new federal structure.
Revenue collection has primarily increased on
higher import growth and an improvement of the tax system. The budget as of
mid-January 2019 is in surplus by NRs173.3 billion owing to strong revenue
growth and a marginal slowdown in recurrent expenses. Though capital
expenditure has surged in the fiscal year through mid-February, its execution
stands at only 22.5%. This could again lead to a spending spree in the last
month of the fiscal year, undermining the quality of capital projects, says the
update.
With rising trade and current account deficit,
Nepal increasingly faces the risk of external sector instability. Data to mid-February
2019 show that trade deficit has surpassed net invisible earnings, widening the
current account deficit to $1.5 billion, marginally up from a deficit of $1.4
billion in the year earlier period. The current account deficit is projected to
widen further to 9.3% of gross domestic product in FY2019, up from 8.2% a year
earlier on increased imports of capital and consumer goods and services,
notwithstanding a healthy growth of remittances and stable oil prices, says the
update.
“Given the growing importance of the services
sector in Nepal’s economy, coherent actions are needed to bridge trade deficit
via export diversification in the services sector,” said ADB Economist for
Nepal Mr. Manbar S. Khadka. “A host of issues pertaining to infrastructural, institutional,
and procedural barriers need to be addressed to promote the services sector.”
Source: Country Office, ADB Nepal.f3gh54ehyx|0030F7E8Contents|Long_Description
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