With favorable weather and sound micro-economy, Nepal’s growth rate is reaching near 7 percent. Although Asian Development Bank’s recent micro-economic update projected growth between 5.2-6.2 percent with inflation 6-6.5 percent, the IMF projected the growth may reach 5.5 percent in 2016-17 and inflation under 7.5 percent.
At a time when Nepal’s two international partners are predicting high growth, Finance Ministry also predicted that around 7 percent growth for coming years. “Given the present rate of growth, we can easily achieve 7 percent growth in these fiscal years,” Finance Secretary Shanta Raj Subedi told New Spotlight. “This is the highest growth rate Nepal has ever achieved.”
Nepal's economy is coming back after a slowdown caused due to the 2015 earthquakes and trade disruptions at the southern border, according to development partners.
"Growth is projected to reach 5.5 percent in 2016-17 and inflation is expected to undershoot the central bank's mid-2017 target of 7.5 percent," the International Monetary Fund (IMF) said in its latest annual report on Nepal.
Asian Development Bank (ADB) also projected the growth for the current fiscal year 2016/17 between 5.2 percent and 6.2 percent, and inflation to range between 6 percent and 6.5 percent, also due to the good harvest propelled by good monsoon, and the local election that is slated for May 14.
The report also analyzed Nepal's mid-year performance in real, fiscal, monetary, and external sectors in the current fiscal year.
"Robust revenue generation but poor capital expenditure resulted in a fiscal surplus as of the first half of the current fiscal year," said ADB report.
"Nepal lags behind many peer countries in terms of attracting foreign investment," reads the report. “Nepal could introduce further reforms to address the de facto practices and procedures governing foreign investment and introduce policy reforms to improve the operational environment for domestic and foreign firms, to turn around the situation,” said the ADB report.
According to IMF, Nepal’s economy is rebounding following a slowdown caused by the 2015 earthquakes and trade disruptions. "The normalization of economic activity is supported by a good monsoon, accommodative monetary policy, and rising government spending," it said.
The report reads that inflation had been decelerating due to base effects related to last year's trade disruption but is expected to remain above India's inflation. "More recently, the authorities have also been able to advance reforms in a number of areas," it said, expecting growth to reach 5.5 percent in the current fiscal year.
While the government's vision is to graduate Nepal from the Least Developed Country (LDC) status by 2022 and achieve middle income country status by 2030, the frequent changes in government have held back progress in addressing infrastructure gaps, weak institutional capacity, and the difficult business climate, it added.
"Nepal is now one of the largest recipients of remittances in the world," it said, adding that at 30 percent of GDP in Fiscal Year 2015-16, remittances helped to reduce poverty, support the balance of payments, and boost the fiscal accounts through higher import-related revenues.
It also said political uncertainty was likely to persist with several elections to be held in the coming months.
"The new government has increased recurrent spending to facilitate post-earthquake reconstruction but inefficiencies in capital budget management and implementation are holding back a scaling up of public investment to support medium-term growth," the report further added.
"The normalization of economic activity, a favorable monsoon season, improved power supply, accommodative monetary policy and rising government spending in part due to the disbursement of housing grants to earthquake-affected households, and a hike in government wages and pensions are spurring a cyclical rebound, as evidenced in recent months by rising imports and tax revenues," it added.
With increased government spending for earthquake reconstruction and good monsoon, Nepal’s economy is achieving growth it has not expected for a long time. Will this boom last?