--By TC Correspondent

 

The World Bank has forecasted that Nepal is heading for a mid-range economic growth of 4 - 4.5 per cent in the fiscal year 2014. The major international lender said that with improvements in some macroeconomic indicators, Nepal's economy will continue to recover from last FY's meager 3.6 per cent growth. "Remittance will continue to support services sector growth and aggregate demand," the bank's latest Nepal Development Update report mentioned. Similarly, the bank projected that public spending will pick up sharply in FY 2014, boosting the overall economy. 

 

The bank noted political instability as the major obstacle to achieve higher growth trajectory. "Political instability clouded the outlook in FY 2013 and remains the principal source of vulnerability going forward," states the report. "It is time for Nepal to shift its focus from politics to economics," said Johannes Zutt, World Bank Country Director for Nepal and Bangladesh in an interaction programme with journalists during the launch of the report on Thursday, “While the political process continues, it is important to focus on economic and development prospects." He mentioned that Nepal's current economic growth is not high enough to reduce poverty. "Nepal should achieve GDP growth of 7 - 9 per cent for sustainable economic growth," Zutt stressed.  

 

Despite the mid-range growth rate, the bank pointed out bottlenecks in access to modern energy, transportation and financial sector as hindrances to achieve higher growth trajectory. Regarding the recent foreign exchange rate volatility, the bank expressed that the depreciation of rupee should be taken as a cause for concern not as panic. "Fears of serious negative economic consequences are mostly exaggerated, although some specific groups and sectors of the economy might lose out," states the report. The bank suggested that Nepal should maintain the existing currency rate peg between Nepali rupee (NPR) and Indian rupee (INR). "Given the significant integration of the Nepali and Indian economies, the peg makes a lot of sense, any adjustment to the peg would sharply disturb the flow of goods and capital between the two countries by adding significant uncertainty to trans-border transaction," the report adds. 

 

Presenting the report, Aureilien Kruse, the Senior Country Economist at the World Bank's Nepal office termed rupee depreciation as an 'alignment' as it had appreciated above target levels. Kruse said that while the currency depreciation has pushed up Nepal's import bills and led to a rise in inflation rate, there are other benefitting factors too. "A depreciated rupee can be translated into stronger incomes from remittances and exports," he said. Though the bank didn't present any exact figure, Kruse projected the inflation in Nepal to remain at 'high single-digit' in coming FY as increasing fiscal expenditures and the upcoming elections will further push up the consumer price levels.