Kathmandu, June 22, 2018
The normalization of supply, availability of electricity, expansion in trade, and improvement in construction activities contributed to the second highest real gross domestic product growth of 6.69 percent (y/y) for FY 2018 in 16 years, says an analytical study by Institute for Integrated Development Studies (IIDS), a Kathmandu based Think-Tank.
IIDS launched its Nepal Economic Outlook 2017-18 and IIDS Data Portal amid a function on 22nd June, 2018 at Himalayan Hotel, Kupondole in the presence of eminent personalities having interest in Nepali economy. Honorable Vice-Chairman, National Planning Commission Dr. Puspa Raj Kandel was the chief guest of the event. Dr. Mohan Man Sainju, Chairman, Institute for Integrated Development Studies (IIDS)and Former Vice-Chairman National Planning Commission chaired the event.
The study report Nepal Economic Outlook 2017-18 forecasts real per capita Gross Domestic Product growth rates of the country for FY 2018-19 and FY 2019-20. Under the baseline scenario (without policy interventions and shocks), GDP growth rate in FY 2018-19 is expected to remain at 4.2 percent and is forecasted to increase to 4.9 percent. Similarly, under the alternative scenario of recurrent and capital expenditures expected to grow at the rates of 17.9 percent and 26.9 percent respectively, GDP growth is forecasted to remain at 4.5 percent and 5.2 percent in FYs 2018-19 and 2019-20 respectively.
The agriculture sector, which still serves as the major economic sector in terms of people's involvement, contributing 29.52 percent to the real GDP. Lower in 2.38 percentage points than previous year due to negative growth of 1.5 percent (y/y) in the paddy production which is the main cereal crop that accounts for 20.75 percent of gross value added of agriculture sector in FY 2018 due to unfavorable monsoon. However, other cereal crops recorded acceleration in the production-maize (9.40 percent, y/y), wheat (9.65 percent, y/y), and millet (2.54 percent, y/y) due to commercialization of agriculture, expansion of irrigation, and availability of fertilizers and seeds.
The industrial sector, which accounts for 14.21 percent of real GDP, performed strongly in FY2018, accelerating to 8.82 percent (y/y) growth from 12.41 percent (y/y) expansion in FY2017 because of regular supply of electricity, improvement in post-earthquake reconstruction and other construction activities, and an increase in the production of manufacturing sector.
The government revenue has registered the second highest growth rate of 21.42 percent (y/y) for the first nine months of FY2018 since the corresponding period of FY2013 owing to the robust growth in both tax and non-tax revenues. Similar to the first nine months of the last five fiscal years, value added tax and income tax accounted for almost 50 percent of the revenue mobilization in the same time of FY2018.
The balance of payments deficit stood at NPR 14.60 billion which is 0.49 percent of GDP for the first nine months of FY2018 compared to the surplus of NPR 69.11 billion (1.92 percent of GDP) during the same period in FY2017, a whopping drop of 121.13 percent as current account deficit widened.
While merchandise exports registered the lowest negative growth of 12.77 percent, since the end of the trade disruptions in three months ending mid-July, 2017. After this trough, exports grew by double digits growth rate and continued to grow at this rate till mid-March, 2018. Following this, exports have slowed down; it picked up by only 2.33 percent in three months to mid-April 2018 compared to the same time the year before.
This edition of Nepal Economic Outlook focuses on two key infrastructure: social (education) and physical (energy). In social infrastructure, we focus on the institutional reform of public education in Nepal, which we believe can potentially improve the quality of public education. The reason for focusing on such reform instead of increasing allocated budget in the education sector comes from two reasoning: i) increasing budget allocation to education sector puts pressure on already existing budget deficit and ii) if the root of the problem is at governance and structure of public school system then added resource allocation is not going to have impact on improving quality of public education in Nepal.
In physical infrastructure, we discuss about the increasing dependence of Nepal on foreign countries, particularly India, for electricity and fossil fuels. We also suggest ways to reduce these dependencies, for example, harnessing hydropower and using domestically produced electricity for transportation, cooking, lighting, and industrial use.
Mr. Nar Bahadur Thapa, Executive Director, Research Department, Nepal Rastra Bank said that economic outlook is very important as it gives forward looking approach. Prospect and risk analysis should be done in coming issues as it gives future outlook of economy. He emphasized that now casting is very important than forecasting as a lot of policy reforms are taking place as there is a stable government. He opined that the growth rate of 8 percent targeted by Nepal Government is achievable.
Similarly, during the event, IIDS also unveiled IIDS Data Portal called NepStat was also unveiled. It provides the general public with one location to openly access more than 1000 Nepal time series data representing the full range of development-related discipline including economics, agriculture, environment, health, banking, insurance and finance. Our mission is to promote economic development and transparency. The data can be used for non-commercial purpose only.
Mr. Suman Raj Aryal, Director General, Central Bureau of Statistics said that democratization of data started from 2005. He emphasized that statistics plays a vital role in social integration and harmony and it is global public good that builds global network. The data portal developed by IIDS helps in data mining and informing general people with data.
Mr. Pushpa Raj Karnikar, Chairperson, IPRAD opined the need of political honesty is very for political stability which is prerequisite for achieving growth and development.
Dr. Jaya Gurung, Executive Director, Nepal Development Research Institute (NDRI) put a query that how much investment and implementation is needed for achieving double digit growth in a year.
Dr. Arun Kumar Thakur, Executive Director, CEDA highlighted the need of joint efforts by research institutes, combining both public and private for producing quality research output which is very much needed for the nation.
Mr. Purna Kadaria, former secretary, emphasized the need of comprehensive research on capital expenditure as Nepal government could not spend resources allocated for infrastructure development which is basic for economic growth.
Dr. Puspa Raj Kandel, Vice-Chairman, National Planning Commission congratulated IIDS for publishing Economic Outlook and highlighted the need of good governance for meeting national targets, including economic growth. He said that academicians and researchers should give inputs to politicians and politicians should strengthening academia for long term growth. Furthermore, he put emphasis on executing after formulating plan and policies with the inputs of think-tanks, research centers and academia.
Dr. Mohan Man Sainju, Chairman, IIDS said that policy is a tool for achieving development and more participatory approach is needed for formulating effective policy.
The electronic version of Nepal Economic Outlook 2017-18 can be downloaded from IIDS website. IIDS is one of the leading private non-profit and non-partisan think tank in Nepal. Nepal Economic Outlook is IIDS' flagship publication that analyses the state of Nepal's economy and makes growth forecasts for major macro variables.
Contact Person: Pramod Rijal, Senior Economist, IIDS