--BY SAGAR GHIMIRE
Nepal’s economy has plunged into a recession for the first time in its history as the country’s GDP witnessed negative growth rates for two consecutive quarters.
According to newly released GDP figures by the Central Bureau of Statistics (CBS), the economy shrank by 15.4 percent in the fourth quarter of the last fiscal year 2019/20 followed by a contraction of 4.6 percent in the first quarter of the current fiscal year 2020/21.
The CBS forecast of declines in GDP growth for two consecutive quarters meet the standard definition for recession, according to economists. This is the first time that the economy has gone into recession since the CBS started to publish the National Accounts report in 1961/62, according to a senior official at the Nepal Rastra Bank (NRB).
“These forecasts of GDP declines show that the economy was in recession during this period. We have not seen such deep contractions in the GDP since CBS started to publish the National Accounts report in 1961/62. There has not been a decline for two consecutive quarters since the CBS started to release quarterly figures in 2004/05,” said the senior official at the NRB, requesting anonymity as he is not authorised to comment on growth figures.
Economists also agree that the contractions represent the recession that Nepal’s economy underwent for at least six months.
“The quarterly data shows that the economy is technically in a recession, but recovery is underway. The extent of the contraction is less in the first quarter of the current fiscal year 2020/21 compared to the fourth quarter of the last fiscal year 2019/20,” Chandan Sapkota, an economist, told New Business Age.
Covid-19 is the main culprit for the contraction in the economy, according to officials and economists.
As the government imposed a nationwide lockdown in March last year for nearly four months to contain the spread of coronavirus, activities in most of the economic sectors came to a grinding halt.
The impact of the lockdown in the economy at the fourth quarter was so significant that it pulled the growth rate of the entire fiscal year into negative territory.
CBS forecasts that Nepal’s economy shrank by 1.88 percent in the last fiscal year, down from its preliminary estimate of a growth of 2.28 percent.
In its preliminary forecast released last April, CBS had painted a somewhat rosy growth prospect for Nepal even when other countries were reporting a sharp contraction in their economies.
CBS officials say that their preliminary forecast was based on an assumption that the lockdown would be short-term and end by June which would lead economic activities to normality.
“The country was in a complete lockdown until mid July last year which disrupted most of the economic activities longer than we had anticipated in our preliminary forecast,” said Ganesh Prasad Acharya, a director at National Account Section at the CBS.
Rebasing National Accounts
The CBS move to change the base year for National Accounts Statistics is also said to have contributed to the decline of GDP growth to some extent.
Rebasing of the National Accounts Series refers to a process of replacing an old base year with a new and more recent base year for computing constant price estimates.
CBS officials say that the rebasing process can be taken as an opportunity to address the limitations regarding methodology, definitions and data sources. Rebasing helps capture new economic activities and structural changes taking place in an economy.
The base year 2000/01 has now been replaced with 2010/11. This means that the new National Accounts Statistics are now rebased to 2010/11 from the earlier 2000/01.
Ishwori Prasad Bhandari, a director at the CBS, said that the rebasing does not change the economic facts, but it measures the economic structure and growth in a more reliable way.
Bhandari said that the rebasing has also led to a change in the composition of the country’s economy. The primary sector's size in the GDP fell to 26.6 percent in the last fiscal year 2019/20 from 37.6 percent in 2000/01 while the secondary sector's weightage went down to 13.2 percent compared to 14.4 percent according to the old base. However, the tertiary sector's size rose to 60.2 percent from 52 percent.
This rebasing of the National Account Statistics has increased the size of the economy to Rs 3,944 billion in 2019/20. The old base had put the size of economy in 2019/20 at Rs 3,767 billion.
“Rebasing increased the share of the services sector in GDP but reduced that of agri. High contact services sectors such as retail and wholesale, and travel and tourism were battered by COVID-19 and the lockdowns. This contributed to deeper contraction,” said economist Sapkota.
But what are the other impacts of rebasing? According to economist Sapkota, several statistics related to fiscal, monetary and external sectors that are expressed as a share of the GDP could see slight downward revisions as the nominal GDP is now going to be larger than in the previous base series.
Recovery on the way?
Though the government has set a target to achieve 7 percent growth in the current fiscal year, the pace of economic expansion is not going to be as rapid as the government anticipates, according to economists.
The contraction was less severe in the first quarter of the current fiscal year compared to the preceding quarter, indicating that the recovery could have already started.
The recent decline in the number of Covid-19 cases, vaccination drive and gradual resumption of economic activities are reasons that have made the government optimistic about recovery. However, most of the sectors including tourism and hospitality are yet to fully reopen.
Neither the private sector nor the government has been able to increase their spending. While outbreaks have slowed down, public health experts warn of the risks of a second wave of coronavirus. Considering these factors, economic growth is less likely to rebound to pre-pandemic level.