According to the Asian Development Bank, Nepal’s economic growth will slow to 4.1 percent in the current fiscal year 2021-22, compared to the previous forecast of 5.1 percent. This is primarily due to high Covid-19 infection and risks, which have now been reduced, as well as slowed growth in tourism and other service industries.
The coalition government led by the Nepali Congress has set an ambitious 7 percent economic growth target for this fiscal year, which will finish in mid-July 2022, despite the fact that specialists have warned of the possibility of a third coronavirus outbreak sweeping the country. When compared to the previous KP Sharma Oli administration’s growth plan, the current target is somewhat higher by 0.5 percentage points.
In his opinion, the government’s projected GDP growth rate is “imaginary,” according to economist Keshav Acharya. “It’s an exaggerated rate of growth, and there is no basis for meeting the aim,” he added.”
Acharya went on to say that about 400 megawatts of electricity were being squandered. “And that represents a significant loss to the economy.” In fact, the protracted political situation, waste of electricity, red tape in the tourism business, and vacant hotels and restaurants are all indicators that the economy will continue to suffer even while the vaccine campaign continues.”
To conclude the lifting of the lockdown, which had been in effect since April 29, the administration issued an official statement on September 1.
He said, “However, manufacturing is still not running at full capacity, banks are experiencing liquidity issues, and hundreds of papers linked to development projects remain on hold because the government has not yet been able to appoint ministers for more than two months.”
“Apart from Covid-19, politics has destroyed the country’s economic advances in the last two years.”
According to the global funding organisation, a number of hazards, particularly those affecting Nepal, threaten the development of developing Asia. The Covid-19 pandemic poses the most serious dangers, with the introduction of new variations, slower-than-expected vaccine rollouts, and declining vaccine effectiveness being among the most serious.
High public awareness of the virus and the government’s aim to immunise 72 percent of the population in Nepal are projected to help lower infection rates in the long run, according to the bank’s report.
According to the most recent data available on Tuesday, 19.6 percent, or 5.62 million Nepalis, out of a total population of 30 million, have received a complete vaccination regimen.
Although the Covid-19 pandemic-induced contraction of 2.1 percent in 2019-20 has been reversed, Nepal’s economy continues to recover despite a surge in infections that prompted severe containment measures in May and June 2021 in most districts, including the Kathmandu Valley.
Entrepreneurs in the travel industry have been petitioning with the government to enable free movement of vaccinated visitors by abolishing the necessary seven-day quarantine rule and resuming the issuance of visas upon arrival.
Economic analysts have noted that Nepal’s economy has had a mixed performance so far in 2015.
Things were looking up until a stalemate in the political arena threw everything off course.
Consumer spending, according to economist Bishwambher Pyakuryal, will provide a boost to the economy.
“Despite the fact that economic activity have returned to their typical levels, driven by consumption, rapid economic development is still a long way off as a result of political wrangling,” he said. “We had anticipated a V-shaped revival in the economy. “However, that doesn’t appear to be realistic.”
It is possible to experience both economic decline and recovery in a V-shaped pattern. An economy may experience a dramatic decline for a short period of time, followed by a steep rise to its previous status.
According to the Asian Development Bank, the Nepali economy is expected to grow at a rate of 2.3 percent in the most recent fiscal year 2020-21, which ended on July 15, 2021, which is lower than the earlier predicted rate of 3.1 percent growth.
Agricultural output climbed by 2.4 percent in the last fiscal year, up from 2.2 percent in the previous fiscal year, according to the bank, thanks to a favourable monsoon and an increase in the amount of agricultural land under cultivation. After falling by 3.7 percent in the previous quarter, the industry sector experienced a 1.7 percent increase in the second quarter, thanks to improved domestic demand and a significant increase in exports.
Services, which had fallen by 4 percent — mostly as a result of the collapse in tourist arrivals, which accounted for 8 percent of GDP directly and indirectly and suffered an 80.8 percent decline in visitor arrivals — experienced a small growth of 2.5 percent.
On the demand side, private consumption dominated spending as a result of high growth in remittances from the developing world. Fixed investment climbed moderately by 4 percent, following a massive 12.4 percent contraction, as both public and private activity increased. This follows a large 12.4 percent contraction.
According to the bank, fiscal policy for the current fiscal year will continue to be expansionary, with a focus on improving health care, creating jobs, expanding social protection for the poor and vulnerable, and increasing agricultural output.
The Federal Reserve will maintain its accommodative monetary policy through the establishment of a specialised big refinancing facility, concessional lending for priority projects, and special lending facilities for affected enterprises.
Inflation declined to 3.6 percent in the past fiscal year from 6.2 percent a year earlier, according to the government. On the back of a resurgence in imports and relatively small price rises for the vast majority of products and services, food inflation eased to 5 percent, while non-food inflation dropped dramatically to 2.5 percent.
Because GDP in the current fiscal year is slowing down more than expected, forecasted inflation has been cut down to 5.2 percent, which is slightly lower than the prediction for 2021.
After shrinking by 19.3 percent the year before, Nepal’s imports increased by 25.7 percent in the most recent fiscal year as the economy began to normalise. In spite of a 30 percent growth in exports and an 8.2 percent increase in remittances, the current account deficit grew dramatically to 8 percent of GDP, significantly higher than the 2.5 percent deficit predicted for 2021, according to the report.
Despite the significant deficit, financing was sufficient to close it, and gross foreign exchange reserves increased modestly to $11.7 billion, enough to finance imports of goods and services for 10.2 months.
The rate of growth in imports will remain strong in the current fiscal year as investment activity increases as a result of the sustained recovery in economic activity.
Despite ongoing robust growth in exports and favourable remittances, the current account deficit is expected to remain large, estimated at 5 percent of GDP in 2021, above the bank’s expectation.