In its latest Nepal Macroeconomic Update released on April 03, 2019, ADB projected Nepal’s economic growth rate at 6.2 percent for FY 2018-19 and 6.3 percent for 2020.

Though there is only a slight rise in projection from 2019 to 2020, ADB says the Himalayan nation can achieve more, and in a sustained manner.

“The outlook is for a stable growth on the back of strong domestic demand, fueled by a larger budget allocation to sub-national governments and accelerated post-earthquake reconstruction,” said ADB Country Director for Nepal Mukhtor Khamudkhanov.

Source: Asian Development Bank

However, the country needs to address some challenges for smooth implementation of fiscal federalism and maintain fiscal discipline to achieve the expected growth.

“Challenges to smooth implementation of fiscal federalism and maintaining fiscal discipline at large could pose potential risks to the outlook. Nepal has the potential to achieve and sustain higher growth rate over a long period of time if these challenges are addressed,” Mukhtor adds.

Sector-wise

ADB projects a positive outlook for the agriculture sector, which is likely to grow up to 4.5 percent from 2.8 percent of the previous year, favored by monsoons.

This monsoon season is expected to boost Nepal’s paddy production to 5.5 million tons, giving an 8.4 percent year-on-year rise.

Industry sector is another area poised for a growth rate, at around 7.1 percent supported by enhanced power supply and favored investment climate.

Services sector is also expected to grow by 6.4 percent in FY 2019 as a result of positive trend in wholesale & retail trade and hotel industry, among other related areas, the report added.

Also Read

• FY 2018-19: Nepal Poised for Healthy, But Slow Economic Growth
• Nepal 2018 Highlights: Path of Progress Began! 

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In its new Macroeconomic Update, ADB noted that Nepal will see a 5.5 percent economic growth rate (at basic prices) in the ongoing current fiscal that started in mid-July 2018.

According to the release, the country’s agriculture sector will more likely grow from 2.8% in FY 2018 to 3.5% in FY 2019, backed by bumper harvest as a result of good monsoon.

Whereas, the industry sector is going to see a 7.2% growth in FY 2019 supported by the improved power supply across the country.

On the other side, the services sector is expected to witness a 6.1% growth in FY 2019 driven by the wholesale & retail trade expansion, travel & tourism subsectors and financial intermediation, informed ADB.

“The growth forecast represents a continued trend reversal but is substantially higher than the average rate of 4.3% in the last 10 years (FY 2009–FY 2018). Growth will be supported by expectations of greater political stability following the 2017 elections, normal monsoon, and efforts to accelerate implementation of mega infrastructure projects,” says Sharad Bhandari, ADB Principal Economist for Nepal.

Inflation, Revenue & Federalism Among Challenges
According to ADB, the growth is going to be healthy, but slow, majorly because of limited capacity at sub-national levels and challenges hindering smooth implementation of federalism.

“Some of the major issues affecting the smooth implementation of fiscal federalism are slow progress in requisite legislation and deployment of staff, the need for further clarification of mandates and responsibilities of the three tiers of government, and inconsistencies in revenue mobilization regarding fees and taxes at local levels,” the release noted.

On the other side, inflation is also most likely to grow from 4.2 percent in FY 2018 to 6.0% by
FY 2019, partially due to supposed higher inflation in India, higher government expenditure under the new federal structure and modest rise in oil prices.

When it comes to revenue collection, it exceeded the Fiscal Budget target in FY 2018 at NPR 731.4 billion (24.3 percent of GDP). However, the fiscal deficit widened to 6.7 percent of GDP because of high government spending compared to previous year.

“While capital expenditures increased by 28.0% in FY2018 with the execution rate at 79.7%, the hasty nature of spending has continued undermining the quality of capital projects,” said the release.

Growing trade and current account deficits are reflecting in country’s risks from external sector.

The current account deficit in FY 2018 stands at 8.2% of GDP, significantly higher than that 0.4% of GDP in the previous year. Whereas, the trade deficit in FY 2018 was majorly due to large import of capital goods and construction material.

“While remittance has shown a healthy growth, a substantial rise in the near future is unlikely to offset the rise in the trade deficit, leading to further widening of the current account gap,” ADB informed.

Will have to see how the government deals with the situation to sustain the expected economic growth rate along with overall sector-wise development.

Nepal Economy at a Glance

Looking at the Nepali economy’s path over the period, the country’s GDP Annual Growth Rate averaged 4.48 percent from 1993 until 2017.

While the country saw an all-time of 8.60 percent in 1993, a record low growth rate of 0.10 percent was observed in 2001.

Here are some notable statistics pertaining to the country’s economic growth over the period:

1) By GDP

By GDP in revenue, Nepali economy has registered a lowest-ever GDP was USD 0.50 billion and the highest recorded till date stands at USD 24.57 billion.

2) By Economic Indicators

By economic indicators under the Asian Development Outlook (ADO) 2018 update, the country’s GDP growth rate grew from 0.2 percent in 2016 to 7.4 percent in 2017. And then saw a sudden down to 4.9 percent in 2018 and went a percent ahead further until now.

3) By Comparison with South Asian Nations

By GDP annual growth rate of middle-income South Asian nations of ADO 2018 update, Nepal stands at 5^th place below Bangladesh, India, Bhutan and Maldives.

In a nutshell

Nepal is one of the least developed countries and has been heavily reliant on foreign aid for local development.

The Himalayan nation is an agriculture-driven economy, which has almost 70 percent of the population employed in it. Agriculture alone accounts for 33 percent of Nepal’s GDP.

Next to agriculture is ‘Tourism’ that the country boasts of as its high-potential sector. Nepal tourism has been steadily growing and recently crossed 1 million mark, turning as one of the key important sources of revenue.

Foreign Tourist Arrivals to Nepal (2010-2018)

Energy is another key potential area for Nepal since centuries, owing to its rich natural resource availability. The country has been working seriously to harness its hydroelectric power, either by local policies alongside welcoming foreign investment.

There are many sectors that speak Nepal’s potential and were left untapped. If tapped, they can really contribute to the overall growth of the Nepali economy.

With this potential in place, the Nepalese economy managed to witness a steady growing in recent years. However, lack of effective governmental institutions social instability were some concerns.

Under the aegis of Oli Government, Nepal is poised to see some significant growth both locally and globally.

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This 26-km tunnel will supply water from the Melamchi river to the residents of the Kathmandu valley, who have been suffering a severe water shortage in the region.

The initiative is coming after a reported loss of about 40% of the 100 million liters of daily water supply, which was going waste due to leakage.

The scope of the USD 335 million project included building of the tunnel and also the construction of a 29-km access.

The Asian Development Bank (ADB) and the Government of Nepal worked hand-in-hand to address this long pending issue.

Within a span of 18 years and with the financial aid of USD 145 million from ADB, the government has brought the project to a promising point in its conception and aims at completing it by early July 2018.

In a joyous breakthrough ceremony, the ADB Director General, Hun Kim said, “I think it is a historic day. Nepal can now tell the outside world that ‘Nepal can do it!’ I think with this kind of spirit, we can overcome any challenges.”

“Today is important because this is the proof that we can work together, and we can deliver. ADB will continue to work with the government until the day when the people in Kathmandu valley get water 24/7,” he added further.

The breakthrough ceremony was also attended by other important dignitaries like the Vice President of Nepal Nanda Bahadur Pun and Minister for Drinking Water Bina Magar.

How can the inhabitants benefit?

With the new development, the customers of Kathmandu Upatyaka Khanepani Limited will now avail an additional 170 million liters of water per day, by the end of 2018. Moreover, the new system ensures water supply for at least 2-4 hours.

The Roadmap for the Future

ABD has planned to work with the Government of Nepal to incorporate the objectives of the Country Operations Business Plan (COBP) for the year 2017-2019, which focus on:

• Better road and air transport connectivity, and trade facilitation;
• Sustainable urban development and assessment of economic corridors to improve linkages with large, fast-growing neighboring countries;
• Energy sector reforms and investments in generation, transmission, and distribution systems;
• Upgrading skills and education; and
• Water resources development and management, and transformation from subsistence to commercial agriculture.

 A Recap of Past Objectives:

ADB had earlier decided to assist the Government of Nepal with its development objective of accelerated, sustainable, inclusive economic growth as per the Country Partnership Strategy for 2013-2017.

The framework of the initiative focused on:

• The growth in economic opportunities in infrastructure
• Access to economic opportunities through projects and programs in education which included skills development, water supply and sanitation and rural infrastructure
• Mainstreaming gender equality and social inclusion and supporting related reforms which would also improve access to basic services
• Promoting social protection through work on disaster risk management, skills development and knowledge partnerships

On an End Note!

The latest improvement supported by ADB is definitely a solution to one of the long-awaited key infrastructure concerns of the Kathmandu Valley. Hope more such international collaborations will take the country’s infrastructure development to the next level.

 Also read: ADB initiatives for Nepal for 2017-19.

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Mukhtor will lead ADB operations in Nepal and will be responsible for the formulation and implementation of ADB’s Country Partnership Strategy for Nepal, informed ADB in its recent official statement.

ADB’s Country Partnership Strategy aims at supporting a country’s long-term development needs by means of human capital, private sector and infrastructure development, while also ensuring social inclusion and regional integration.

“ADB has an extended development partnership with Nepal. My priority is to build on that partnership, work closely with the government, and effectively coordinate our country office’s extensive support to the government’s development agenda and poverty reduction efforts,” Mukhtor said in a statement.

Mukhtor held various senior positions at ADB since his joining the organization in 2001 and lastly served as the Principal Energy Specialist in the Energy Division for South Asia at ADB headquarters in Manila, Philippines.

Mukhtor’s appointment comes as a replacement to the outgoing ADB Country Director for Nepal, Kenichi Yokoyama, who served the country since 2011 and is now the Country Director at ADB’s India Resident Mission.

Nepal is a founding member of ADB and has so far received USD 5 billion in private and public sector loans, technical assistance and grants from the Bank.

This announcement gains significance in the light of a recent move by the Nepali Cabinet, wherein, it has approved USD 150 million ADB loan for infrastructure development in Nepal.

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