--By TC Correspondent

 

Nepal’s gross domestic product (GDP) growth will rise to 4.5 per cent this fiscal year, a new Asian Development Bank (ADB) report has projected.  “The positive political outlook, expected increase in agriculture production following a favorable monsoon, modest improvement in capital expenditure following the timely full FY 2014 budget, and a strong services sector performance supported by remittance income are expected to boost gross domestic product (GDP) growth (at basic prices) to 4.5 per cent in FY 2014, up from 3.6 per cent in FY 2013,” the Manila-based regional development bank in its latest macroeconomic update for Nepal informed. 

 

The bank, however, mentioned that the forecast is lower than the government’s projection of 5.5 per cent GDP growth due to less than expected increase in capital spending and a slightly lower services sector.  “Despite the timely full budget, expenditure performance was not satisfactory in the first half of FY 2014. Of the total planned expenditure of Rs 517.2 billion, only 30.3 per cent was spent largely due to the lower than expected capital spending. The slow pace of spending so far indicates that the capital budget will likely continue to be under spent as in the previous years,” the report noted. “In addition to the improvements in agriculture production, both domestic and foreign investment commitments increased remarkably in the first half of FY 2014.” 

 

The bank said that there is an urgent need to ramp up both the quantum and quality of capital spending as it not only ‘crowds in’ private investments, but also helps create the foundations for the lackluster growth to take off on an employment-centric, high, inclusive and sustainable growth path.

 

According to the report, Nepal may not meet its yearly revenue target this year due to the depreciation of the Nepali rupee against the US dollar which is slowing down import demand in the country. “Even though the Rs 163.4 billion revenue mobilized in the first half of FY 2014 is 21.5 per cent is higher than the revenue mobilized in the corresponding period in FY 2013, it still is lower than the half-year target set for this fiscal year,” it said. 

 

Similarly, the bank forecasted the inflation rate to stand at 10 per cent in FY 2014, higher than the government’s target of 8.5 per cent. “Despite the expected improvement in agriculture harvest, the wage pressures, the persistently high price level in India, the rise in administered fuel prices, lower interest rates, the persistently weak Nepali rupee and the supply-side constraints, average annual consumer price index (CPI) inflation in FY 2014 is forecast at 10 per cent,” ADB mentioned. The bank informed that inflation averaged 9.1 per cent in the first half of FY 2014, down from 10.7 per cent in the corresponding period in FY 2013. The decline in prices is mainly driven by the sharp slowdown in non-food and services prices. However, the persistence of the high inflation level is supported by rising food and beverage prices, which averaged 11.5 per cent in the first half of FY 2014 against 9.8 per cent during the same period in FY 2013, the report notes.