Nepal’s Economy To Shrink to 2.1% in FY 2020/21: Warns World Bank

After three years of substantial economic expansion, with an average growth rate of 7.3%, Nepal’s economy experienced headwinds in the first half of FY 2020.

Despite the government’s efforts to curb the economic crisis incited by the coronavirus pandemic, the impact on economy and livelihood is expected to be profound in the current fiscal as well.

According to the World Bank’s latest Nepal Development Update, the economic growth rate is estimated to decline to 2.1% in the FY 2020/21.

The fiscal deficit is poised to drop to 6.6% of GDP in the current fiscal, compared to 7.3% in FY 2020.

Moreover, the current account deficit is projected to be at 6.5% of the GDP in the current fiscal, compared to 7.2% in previous fiscal.

The Economic Situation During Current FY 2020-21:

• Economic activity in the tourism sector will remain weak
• Remittances inflows will be moderate
• Industrial and agricultural production will be low due to lasting supply chain disruptions
• Imports will be low and below the pre-pandemic levels due to low economic activity
• Low oil prices
• Limited revenue collection

However, FY 2021 Budget measures, including a revision of customs duties, will support the budget as COVID-19 relief and recovery spending will remain elevated.

The World Bank has exclaimed that the unprecedented economic fallout would worsen food insecurity, poverty and inequity in the country. This, in turn, leads to further revenue shortfalls and fiscal slippages.

And such a situation could elevate the fiscal deficit to 11.5% of the GDP.

“For a resilient recovery and inclusive growth, economic support measures to firms and workers in the informal sector will be important,” said Dr. Kene Ezemenari, World Bank Senior Economist.

“Incentives to agribusiness-based and forest-based SMEs, with a focus on returnee migrants and youths, could help increase employment and food security. Inclusive growth could be further promoted through entrepreneurship support programs and grants to small and medium enterprises,” she added.

The report also outlined the strategic measures to fortify the healthcare system and improve social protection systems to make them more resilient against future crises.

The World Bank has pressed the importance of improved school sanitation and health protocols such as health screening and water facilities to enable a return to schooling for children.

“We need to address the crisis with a macroeconomic and sectoral policy focused on fiscal sustainability, financial sector stability, a digitally-oriented green economy and resilient public services,” said Finance Minister Dr. Yuba Raj Khatiwada.

“For Nepal to emerge stronger from the crisis, it is important to adapt quickly to the new reality,” stated Faris Hadad-Zervos, World Bank Country Director.

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