Slump in Economic Activities Continues despite Government’s Claim of Improvement

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Slump in Economic Activities Continues despite Government’s Claim of Improvement

May 1: Due to the decline in trade of industries, Nepal's economy is poised to grow nominally this year.

According to the Annual National Accounts Estimates made public by the National Statistics Office on Tuesday, Nepal's economic growth rate in consumer prices for the current financial year (FY) 2080/81 will be 3.87 percent. This growth rate is less than the target set by the government, which is 6 percent.

The economic growth rate projected by the National Statistics Office for this year is close to the earlier projections made by the World Bank and Asian Development Bank. Last month, the World Bank had projected the Nepalese economy to grow by 3.3 percent and the Asian Development Bank by 3.6 percent. The growth rate has been projected on the basis of the actual economic activities in the first nine months of the current fiscal year and the growth rate projections for the next three months.

In the last fiscal year 2079/80, Nepal's revised economic growth rate was 1.95 percent, but now it has increased slightly despite a contraction in Nepal's construction business and productive sector.

According to the office, the productive sector is estimated to grow by 1.6 percent. The growth of the construction sector is estimated at 2.07 percent. 

“The overall demand for goods and services has declined due to the decline in the business of the construction and trade sector. As a result, the industries have not been able to operate in full capacity,” reads a statement issued by the NSO on Tuesday.

The private sector has been complaining for a long time about not being able to run the industry at full capacity due to lack of demand in the market. The NSO said, “If there is no significant improvement in the global economy, it is expected that Nepal's industries will see a further contraction including their output.”

According to the NSO, the construction sector is estimated to be shrinking due to import of construction materials and reduction in production of construction materials domestically.

The construction sector can benefit from the capital expenditure of the government. However, the government has not been able to spend much of the capital expenses allocated in the current fiscal year’s budget. According to the records of the Financial Controller General’s Office, the government’s capital expenditure stands at only Rs 130 billion out of the allocated budget of Rs 302 billion as of April end. 

The trade (wholesale and retail) sector, which had contracted last year, has not shown much improvement. The government estimates that the growth rate of this sector will be only 0.16 percent. The business sector is the sector that contributes the most to the economy after agriculture.

Similarly, the NSO informed that there has been slowdown in the real estate business and education sector as well.

Former Chief Secretary Bimal Koirala says that economic indicators are still not positive. Koirala said that the government does not have a plan to deal with the impacts of coronavirus as well as the Russia-Ukraine war.

Koirala said that the industries and factories have been affected due to lack of strategy on the part of the government to manage such a crisis. He said that there are many problems in the governance system and the economy will remain affected unless they are improved.

“To improve the economy, the government should look at policy reforms and create an investment-friendly environment,” he said. According to Koirala, the government needs to spend the budget effectively and increase investment in the market to make the economy vibrant.

On the positive side, the food and accommodation sector has seen a  notable growth due to the rise in arrival of tourists.

The growth rate of this sector is estimated to be 21.84 percent, while the growth of hydropower and electricity sector is estimated to be 17.44 percent. Similarly, the growth rate of transport and storage sector is estimated to be 11.89 percent. The growth rate of financial and insurance services will be 7.86 percent this year, according to the NSO.

The annual average per capita income of Nepalese is estimated to reach US dollars 1,456. According to the exchange rate on Tuesday, the annual average per capita income of Nepalese is Rs 194,026. Last year such income was USD 1,405.

Similarly, in the current year the size of the economy at current prices is estimated to exceed Rs 5.7 trillion. Last year the economy was estimated to have reached a size of Rs 5.38 trillion. Generally the economic growth rate is measured by consumer prices. 

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