Economic Growth Expected to Decline
Nepal’s economic growth is expected to ease to 2.5 percent this year from 2.8 percent in 2006, says a government report.
The weakness in growth is attributed to the decline in farm output because of poor rain, slump in business and tourism due to the Maoist insurgency as well as infrastructure damage, etc.
The past year, it was mainly an agricultural setback. Farming contributes more than 36 percent to the country’s economy and this sector employs over 80 percent of its 26.4 million people. But farming lacks adequate irrigation facilities and is dependent mainly on the monsoon rains.
The report says farm sector growth would slow to 0.7 percent in 2006/07 from 1.1 percent last year whereas non-farm growth was likely to fall to 3.6 percent from 4.6 percent in the year before. The unrest in Terai and continued Maoist violence is expected to continue affecting the economy negatively.
Here is the executive summary of the report, entitled "Economic Survey: Fiscal Year 2006/07":
Executive Summary: Economic Survey: Fiscal Year 2006/07
1. World output growth rate reached 5.4 percent in 2006. Of this, advanced economies' growth rate stood at 3.1 percent while the emerging and developing economies grew by 7.9 percent. In 2007, the growth rate is projected to come down to 4.9 percent, of which the advanced economies will grow by 2.5 percent while the emerging and developing economies will maintain 7.5 percent. Nepal's immediate neighbors, India and China, achieved growth rates of 9.2 percent and 10.7 percent respectively in 2006, but the following year will see a slight slump with 8.4 percent and 10.0 percent respectively. Talking of South Asia as a whole, the region witnessed an encouraging growth rate of 8.7 percent in 2006, whereas in 2007, it is projected to marginally come down to 8.1 percent. As regards the price rise, it reached 2.3 percent in advanced economies and 5.3 percent in the rest of the countries in 2006, and is projected to remain 1.8 percent and 5.4
percent respectively in 2007.
2. Nepal's economic growth rate remained below 5.0 percent in the last six years because of the country's precarious economic circumstances. In FY 2005/06, Nepal's GDP growth rate stood at a meager 3.3 percent of which the agricultural sector's growth was 1.1 percent and the non-agricultural sector's higher, at 4.6 percent. The growth rate further decelerated in FY 2006/07 to 2.5 percent, with the agricultural sector's marginal growth of 0.7 percent against the nonagricultural sector's 2.5 percent. The extremely unfavorable weather, among other things, caused this high decline in agricultural production, especially that of the paddy. The impact could clearly be seen on the overall agricultural production index which increased by a mere 0.4 percent in 2006/07 against the increase of 1.1. percent in the preceding year. Conversely, the production index of the major industrial products grew by 2.1 percent this year compared to the growth of 1.9 percent last year. In the current FY 2006/07, GDP growth rate at current producers' prices is estimated to remain 11.1 percent, the highest at current prices since FY 2000/01 (the benchmark year for the new series of the National Accounts Statistics).
3. FY 2006/07 in comparison to FY 2005/06 noticed higher growth rates in sectors
such as real estate and professional services (8.7 percent this year against 1.1 percent last year), transport, communications and storage (8.1 percent this year against 4.4 percent last year), education (5.6 percent this year against 2.7 percent last year), and industry (2.2. percent this year against 2.0 percent last year).
4. The sectors that recorded dismal performance in FY 2006/07 compared to FY 2005/06 include agriculture (as noted above), wholesale and retail trading (-2.6 x
percent this year against 3.7 percent last year), construction (1.5 percent against 7.3 percent), hotels and restaurants (2.8 percent against 6.0 percent), electricity, gas and water (3.2 percent against 3.6 percent), public administration and defense (3.6 percent against 6.9 percent), other community, social and individual services (5.0 percent against 7.5 percent), health and social services (5.2 percent against 7.0 percent), quarrying (6.0 percent against 7.6 percent) and financial intermediation (8.6 percent against 16.5 percent).
5. A review of the share of the major production sectors in GDP at real prices in FY 2006/07 testifies to the growing predominance of the services sector in the economy. Viewed sector-wise, agriculture stands with 36.1 percent contribution to the GDP at real prices in FY 2006/07; wholesale and retail trade with 13.1 percent; transport, communications and storage with 8.7 percent, industry with 7.8 percent, real estate and professional services with 7.5 percent, construction with 6.1 percent, and education with 5.9 percent. The increase in services sector's contribution reflects the changing feature of economic development.
Compared to its growth rate of 4.7 percent in FY 2005/06, it has recorded a phenomenal growth rate of 9.0 percent in the following year, thus increasing its total share in GDP from 46.4 percent last year to 47.1 percent this year.
6. The proportion of Gross Domestic Saving (GDS) to GDP remained 7.9 percent In FY 2005/06, which increased to 9.4 percent in the succeeding year. Similarly, the proportion of Gross National Saving (GNS) to GDP increased from 28.2 percent in FY 2005/06 to 28.6 percent in the following year. Though the proportion of total investment to GDP slightly declined from 26.0 percent in FY 2005/06 to 25.3 percent in the following year, the surplus of GNS over total investment in proportion to GDP increased from 2.2 percent last year to 3.3 percent this year, reflecting an improvement in the resource balance.
7. High revenue growth is one of the major achievements in FY 2006/07. In FY 2005/06, revenue grew by 3.1 percent and its proportion to GDP stood at 11.2 percent. This year, it increased by 19.5 percent and its proportion to GDP rose to 12.0 percent. The proportion of tax revenue to GDP increased from 8.9 percent last year to 9.7 percent this year. The budget deficit remains under control, and the proportion of the outstanding public debt (both domestic and external) to GDP has come down to 46.2 percent this year from 50.1 percent last year.
8. The net capital investment of public enterprise s (PEs) increased by 4.4 percent to the tune of Rs. 196 billion 670 million this year. The proportion of operating profit to net capital investment also increased from 0.9 percent last year to 5.0 percent this year. However, still a few PEs remain without updated audit reports and there is also a need for settling and harmonizing the accounts of the xi government and the PEs regarding the former's share and loan investments into the latter.
9. Consumer price rise is estimated to have decreased to 6.6 percent in FY 2006/07 from 8.0 percent in FY 2005/06. Wholesale Price Index, however, is likely to go up from 8.9 percent last year to 9.0 percent this year. Similarly, the GDP Price Deflator is also projected to grow from 6.4 percent last year to 8.3 percent this year.
10. In the banking sector, the total deposits are projected to increase to 17.4 percent in FY 2006/07 from 16.1 percent in FY 2005/06. The proportion of total deposits in the banking sector to GDP has increased from 41.6 percent last year to 43.6 percent this year. The share of outstanding private sector credit in the total banking sector credit took an upturn from 69.8 percent last year to 75.3 percent this year. Likewise, the proportion of narrow money supply to GDP slightly grew from 17.5 percent last year to 17.7 percent this year, whereas the proportion of broad money supply to GDP recorded considerable increase from 53.6 percent last year to 55.9 percent this year. This shows the progress in
11. On foreign trade, the proportion of trade deficit to GDP remained 17.6 percent last year, which has marginally come down to 17.5 percent this year. The remittances earned by the Nepali employees abroad recorded good progress, with an estimated increase from Rs. 97 billion 690 million last year to Rs. 102 billion 10 million this year. On external transactions, the BOP position remains in surplus. As a result, total foreign exchange reserves increased from Rs. 165 billion 130 million (US$ 2 billion 220 million) at the end of FY 2005/06 to Rs. 171 billion 370 million (US$ 2 billion 420 million). This reserve would be sufficient to finance 11 months of imports of good and 9 months of imports of goods and services combined.
12. While the number of tourists fell by 2.6 percent to 3,75,398 between December 2004 and December 2005, it reached 3,93,949 between December 2005 and December 2006, registering an increase of 4.9 percent. In the first six months of FY 2006/07, the number of air travelers, both foreign and the Nepalese, stood around 800,000.
13. On the road transport sector, the first eight months of FY 2005/06 witnessed the construction of blacktopped, graveled and fair-weather roads totaling the length of 17,297 km; it reached 17,609 km during the same period in FY2006/07.
14. The number of primary, lower secondary and secondary schools remained 34,543 in the academic year 2005, which increased to 42,110 in the following academic year. In the similar vein, the number of enrolled students increased from 64,63,000 in academic year 2005 to 64,96,000 in academic year 2006. The number of teachers remained 1,30,626 in academic year 2005, which increased to 1,41,605 in the following academic year. Of the total teachers, the number of those trained grew from 52,305 to 82,498 during the same comparable years.
15. Progress has been noted in the health sector as well. The number of health institutions including the hospitals, for instance, increased from 6,796 in July 2006 to 6,944 during the first eight months of FY 2006/07. The skilled human resources in the health sector also noticed an increase: from 90,849 to 91,744 during these comparable years.
16. Nepal confronts with a number of economic challenges at present: low economic growth, low per capita income, higher level of poverty, poor social indicators, underdeveloped physical infrastructure, and high-cost economy leading to higher cost of production and so on. While the world economy in general and the emerging and developing economies, India and China at our doorsteps in particular, are moving fast along the trajectory of economic growth, Nepal still finds itself grappled with a host of problems that demand early and effective solutions to ensure an inclusive, just and high economic growth on a sustainable basis. To attain a discernible progress in poverty reduction, economic agenda should be accorded fitting priority coupled with the institutionalization of sustainable peace and democracy in the country.
To read the full report, click here.
Posted by Editor on July 12, 2007 9:19 AM