neftake

Five Key Pointers from Nepal Economic Survey 2016/17

The recently launched Nepal Economic Survey 2016/17 provides an optimistic economic outlook for the country and strongly suggests that the economy has bounced back after hitting rock bottom last fiscal year due to the April earthquake and the four-month India-imposed blockade. Listed below are five key highlights to reflect on from the survey:

1.       GDP growth rate and sustainability: According to the survey, GDP growth for the FY 2016/17 is estimated to reach a nine-year high of 6.94%, to NPR 2,627 billion (USD 25.3 billion). Favorable business climate owing to increase in capital spending and improved investment climate led to the record-high growth. Even though the growth rate looks positive from the outset, it is due to factors that might not prove sustainable in the future, questioning the sustainability of growth itself.

● Base effectOne primary reason behind the robust growth rate this fiscal year is the low base rate of a mere 0.77% in the previous year. Therefore, normalization of supply and even the slightest improvements in economic activities would have registered a large growth rate this year.

● Good monsoon and sustained electricity supplyIn addition to the base effect mentioned above, a good monsoon and drastic improvement in electricity supply have also contributed to GDP growth. Good monsoon rainfall led to a bumper harvest of major crops such as paddy, with the agricultural sector expected to register a nine-year high growth rate of 5.32% this year. Moreover, the industrial sector has also greatly benefited from the upturn in electricity supply, posting a high growth rate of 10.97%.

2.       Per capita Income:  Per capita income jumped to NPR 88,268 (USD 850) on average in FY 2016/17 according to the survey. This represents a 6.1% growth rate compared to the per capita income of NPR 77,516 (USD 747) the previous fiscal year. This current increase shows that per capita income in the country has more than doubled since FY 2006/07. Still, the growth rate of per capita income is sluggish and a continuation in this course can cast a shadow over the government’s plan of classifying Nepal as a middle-income country by 2030.

3.       Moderated Inflation Rate: Inflation rate has moderated to 5.1% in the first eight months, against the target rate of 6.5%. In the same period last year, inflation hovered around 9.7%. According to the survey, growth in agricultural output and improvement in supply chains have led to low inflation. Furthermore, the impact of decelerating inflation rates in India should not be overlooked either as Nepal imports a majority of its goods from its southern neighbor. Therefore, a fall in inflation rates in India will have a ripple effect on rates in Nepal.

4.       Low government spending: The survey also shows the failure of the government to spend the allocated budget. With only two months left till the end of FY 2016/17, the government has spent less than 50% of the total budget—only NPR 400.16 billion (USD 3.85 billion) has been spent out of NPR 1,048.9 billion (USD 10.1 billion) annual budget. Therefore, it can be expected that the government will not be able to spend the annual budget entirely and will resort to reckless spending in the concluding stages of the fiscal year, an ongoing trend for the past years.

5.       Balance of Payment (BoP) Surplus: According to the survey, Balance of Payments (BoP) registered a surplus of NPR 50.6 billion (USD 481.9 million) in the first eight months FY 2016/17.  This is due to the increased inflow of remittance, signifying Nepal’s high reliance on remittance. Remittance inflow grew by 6% in the first eight months of the current fiscal year.

Sectoral Composition of GDP

Conclusion:

With the survey estimating strong growth rate, the question that now needs to be pondered upon is whether such rates can be sustained over the coming fiscal year or not. Substantial impact from the base effect, monsoon rainfall and electricity management have contributed to these positive figures, and therefore maintaining and improving upon these growth rates should be the focus.

 

This blog is co-authored by : Sijan Thapa, Zubin Rajbhandary, Niraj K.C. and Shikshya Gyawali

Article views: 969