Kathmandu, Apr.26: Having recorded a one per cent rise in the GDP growth rate last year, Nepal’s economy should achieve an economic growth rate of five to six per cent in the current year, the Asian Development Bank has stated in its Asian Development Outlook 2000 which was launched here today.
Both the growth rates, of last year and the one expected to, are the result of a better performance in the agriculture and the industry sector, particularly the carpet and garment industries, said the Outlook.
“The Outlook notes that the macroeconomic situation in Nepal was stable in 1999 despite the uncertainty caused by the change in the government. Real GDP growth rose to 3.3 per cent, from 2.3 per cent in the previous year.”
Inflation rose to almost 13 per cent in 1999 due to rise in food prices. The budget deficit remained as 6.1 per cent in 1999, with domestic revenue collection substantially lower than the budgeted amount, with actual revenues about 10 per cent of the GDP. The shortfall in revenues was balanced by slower-than-budgeted growth in development expenditures. Nepal’s current account deficit declined dramatically in 1999 because of strong export growth and a contraction in imports, mainly related to foreign aid.
Price performance in 2000 will benefit from bumper harvests throughout the region. As a result, inflation is expected to fall to five per cent despite increase in prices of kerosene, diesel and electricity in the second quarter of the fiscal year. Domestic revenue estimates in the current budget are optimistic with a projected growth of 14 per cent. Actual revenue performance will critically depend on the effective implementation of the value-added tax.
The fiscal deficit for 2000 is projected to reach seven per cent and to continue to rise in 2001. Development expenditures in 2000 budget are projected to grow by 33 per cent. These will be mainly financed by foreign grants, which are projected to grow by 47 per cent.
The Outlook notes that the peg with the Indian rupee provides a useful nominal anchor for the economy, but to sustain it, the Central Bank must reduce inflation and interest rate differentials with India. “The current account deficit is expected to widen in 2000, as aid-related imports return to their previous levels, particularly if the government succeeds in its ambitious development agenda. Merchandise imports are projected to grow 15 per cent, with investment goods expanding faster than consumer goods imports. Export growth should continue to be strong in 2000, but will slow without the grain export of the previous year. The current account deficit is thus expected to reach about eight per cent of GDP in 2000, and more than nine per cent of the GDP in 2001. The debt-service ratio should remain at a low six per cent, as much of the debt is concessional.”
Highlighting the contents of the Outlook, Richard Vokes, Resident Representative of the ADB, told a press meet today that apart from the need to continue and sustain reforms in the agriculture sector, civil service reform and financial sector reform need to be at the core of the government’s broad-based reform agenda. “If the new government, as promised, push forward with implementation of a second round of economic reforms, then the outlook for 2001 is for continued strong growth.”
Vokes further added that in case of Nepal, which has not been much affected by the crisis, corporate and financial governance reforms are nonetheless crucial for generating pro-poor economic growth given the serious problems facing the financial sector and the weak governance in both the financial and corporate sectors.
Having outlined poverty as the main social challenge in Asia today, he said that the ADB has adopted poverty reduction as its overarching development objective. “Fundamentally, the ADB believes that promoting economic growth remains the best path to poverty reduction.”
To make the poor share the growth, the Outlook, said Vokes, has emphasised a number of policy priorities including openness and market orientation, human resources and physical infrastructure, improving governance, strengthening social protection, increase in the flow of foreign assistance and providing international public goods.
“We are very encouraged by the government’s Reform Agenda for Poverty Reduction set out in the government’s Country Memorandum presented at the recent Nepal Development Forum in Paris last week, along with a paper highlighting the government’s Priority Reform Actions. These cover all the key elements identified above. However, as we discussed in Paris, the second round reform agenda requires urgent actions across a wide range of areas.”