Nation’s growth pipped to reach 3.8pc in 2011
Nepal’s economic growth is projected to reach 3.8 percent in 2011 as a result of robust summer harvests while industrial growth is expected to be disappointing.
According to the report entitled Asian Development Outlook 2011 made public by the Asian Development Bank (ADB) here on Wednesday, the growth rate is expected to climb to 4 percent in 2012 if the weather continues to remain favourable for agriculture.
However, the ADB warned that the improvement in the farm sector would not be enough to offset the deceleration in non-farm activities.
According to the ADB report, Nepal’s industrial growth will remain at just 1 percent in 2011 compared to 3.3 percent in 2010 largely due to a slowdown in construction activities and higher fuel costs.
“Political uncertainty and power cuts lasting as long as 14 hours will continue to take a toll on non-farm activities,” stated the report.
Releasing the report, ADB’s Country Director for Nepal Barry J. Hitchcock said that only enhanced business confidence and investment for industrial development would help to achieve sustained growth.
The ADB said that further protraction of the peace process, high oil prices, unrest in the Middle East, bubble burst in the realty market, low tourist arrivals and decreased development assistance as a result of the disasters in Japan would pose key risks to growth. The ADB said that further downward correction in realty prices would undermine revenue mobilization efforts and put many construction related jobs in
jeopardy.
The ongoing unrest in the Middle East may affect remittance flow which has become the main engine of the country’s economy, according to the report. It said high food and oil prices and different factors including power cuts would continue to exert pressure on inflation. However, the ADB expects inflation will moderate in 2012 to 8 percent due to the government’s taking measures to end the syndicate system in transport and likely moderation in Indian inflation. As Nepal is heavily dependent on Indian goods, high inflation in India will affect Nepal’s inflation too.
Considering that the existing tight monetary policy has reduced real estate activity, the ADB does not see the possibility of further tightening of the policy. “A further tightening of the policy could trigger a disruptive correction in house and land prices, worsening the quality of the loan portfolios of commercial banks and potentially posing a threat to macro-economic stability,” stated the report.
Amid fears of defaults on realty sector loans, the central bank has given some respite to the sector by removing home loans of up to Rs 6 million from the category of real estate lending and allowing borrowers to renew their loans once by paying the interest incurred.
With regard to Nepal’s external sector, the ADB report shows exports picking up and imports dwindling after a sustained drop in exports lasting more than a year. “After an approximate 4 percent fall in external reserves in 2010, they have recovered to reach US$ 2.8 billion in January 2011 worth about six months of imports,” the report said.
Posted on: 2011-04-07 08:18
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