| April 23, 2018

IMF lowers Nepal's economic growth

KATHMANDU, April 13: A couple days after the World Bank cut Nepal's economic growth forecast for Fiscal Year 2015/16 to 1.7 percent, International Monetary Fund (IMF) has even lowered the growth forecast to 0.5 percent.

Like the World Bank, the IMF has also attributed trade disruptions along Nepal-India border points, delay in execution of post-earthquake reconstruction works, and unfavorable monsoon that will hit output of goods and services for the lower economic growth.
The growth projection of the IMF published in World Economic Outlook Report is the lowest in the last 14 years.

Though the government has projected economic growth to be around 2 percent, another multilateral development partner Asian Development Bank (ADB) recently forecast 1.5 percent economic growth in the current fiscal year.

Though all of them have pointed out the devastating earthquakes a year ago -- on April 25 and May 12 -- and subsequent aftershocks, delay in reconstruction works due to political bickering and border obstructions for almost four months after the promulgation of constitution as the major factors that have pulled the economic growth down, their forecast has been different.

The massive devastation -- that floored around 800,000 houses, apart from cultural heritage sites, and public buildings including schools, hospitals and police posts -- had pulled down economic growth to 3.04 per cent in Fiscal Year 2014-15, from projected 5.5 percent. The natural disaster had damaged the assets, but the India-imposed economic blockade for almost 4 months hit the income of the people resulting to heavy loss that is pulling economic growth down between around 2 percent to 0.5 percent.

The four-month blockade not only created supply disruption but also dealt a severe blow to industries and lowered consumption. On top of the natural disaster and blockade, the government also failed to spend capital budget that could have created employment and lay the foundation of economic activities and capital formation.

According to the Financial Comptroller General's Office, the government has been able to spend only 16.61 percent of the capital in the first nine months of the fiscal year. Of the Rs 208.87 billion capital budget, the government has been able to spend only Rs 34.69 billion. The inefficient bureaucracy and low political willingness failed the country, hitting not only the economic growth but also pushing the country backwards to around a decade.

According to the IMF report, all these problems are expected to push Nepal to the third lowest rung of the economic growth ladder in Emerging and Developing Asia in the current fiscal year.

In the group of 29 developing countries, Nepal is only above Mongolia, which is likely to post a growth of 0.4 per cent, and Brunei Darussalam, whose economy is expected to contract by two percent this year, the report read, adding that the inflation, however, is likely to hit double digit at 10.2 per cent. "Such a jump in prices of goods and services will make Nepalis feel poorer because their income is not expected to go up in line with the expenses," the report stated.