NepaliEconomy.com: March 2007

Saturday, March 31, 2007

Roundup of Economic & Business News (Mar 24- Mar 31)

ADB downscales growth to 2.8%

ADB downscales growth to 2.8%
eKantipur.com, 27-Mar-2007

Asian Development Bank (ADB), a leading multilateral donor, Tuesday down-scaled Nepal's economic growth forecast to 2.8 percent from the budgetary target of 5 percent for the current fiscal year.

ADB's Asian Development Outlook (ADO) 2007 unveiled today has attributed the low growth rate to a legacy of quasi-feudal political structure, political instability and deteriorated labor relations.

"Lifting the country's growth to its potential level depends crucially on sustaining peace, including timely and non-violent constituent assembly elections scheduled for June this year," said Paolo Spantigati, acting chief of ADB Nepal Resident Mission.

For the year, ADB has further projected consumer prices to ease to about 5.3 - 5.4 percent from over 8 percent of the last fiscal year. For the fiscal year 2008, ADB has also projected the economic growth to remain at about 2 percent.

In the medium term, Spantigati said prospect of growth depends largely on trading terms, particularly with India - the largest trading partner, pace of structural reforms, rise in investment in infrastructure and basic services, education and health.

"Reviving conflict-hit industries is also important," he added.

While containing inflation has been pinpointed as a major macroeconomic challenge for the country, at the microeconomic level, the ADO suggests that government build efficient financial, capital and labor markets, deliver high quality infrastructure services and improve business and investment climate.

It also seeks strengthening of delivery of effective public services and creation of preconditions for productivity improvements.

The ADO further projects South Asia to grow moderately at 7.7 percent in 2007 and rise slightly to 8 percent in 2008.

It says India's growth will moderate to 8 percent in 2007 and then rise to 8.3 percent in 2008, down from 9.2 percent achieved in 2006.

The report says wholesale price inflation in India is expected to soften and remain steady at 5 percent in both 2007 and 2008, due mainly to tighter monetary policy, rise in agricultural planting, good spring harvest and cuts in import duties on key commodities.

In South Asia, the services sector is expected to drive economic growth, supported by accelerated growth in manufacturing, says the ADO, adding that resolution of political uncertainty and security concerns are crucial, as those continue to cast a shadow on the outlook.

The ADO further projects developing countries in Asia to grow at 7.6 percent in 2007 and 7.7 percent in 2008. The expansion is attributed to rapid growth in China and India.

Inflationary pressure in 2007 is expected to wane in response to tightening measures taken in the region along with the recent slide in oil prices.

It says that developing countries in Asia need to adopt a strategy of 'walking on two legs (industry and services)' to boost productivity growth and to create jobs for 750 million people in the coming decades.

"Industry cannot prosper without efficient infrastructure, and services alone cannot provide the levels of productivity to boost growth and jobs needed to spread its benefits," it says.

Sunday, March 25, 2007

Roundup of Economic & Business News (Mar 1- Mar 23)

Roundup of Economic & Business News (Feb 17 - Feb 28)

Saturday, March 24, 2007

Midterm review of monetary Policy

Midterm review of monetary Policy
‘Creeping inflation a challenge for economy’
eKantipur.com

Nepal Rastra Bank (NRB) on Wednesday released the mid-term review of Monetary Policy, which leaves all monetary measures unchanged, giving up on efforts to curb rising inflation.

Reckoning that inflation is spurred by supply factors including rise in prices of food items, the Policy concluded that taming inflation was not possible only through monetary means In the present context, it is not necessary to change monetary instruments for the purpose of containing inflation, states the Policy.

“Private sector's investment has not picked up. The government's expenditure remains contained. As a result, the aggregate demand of money is low. This justifies that money supply does not have any contribution to push up inflation,” states the Policy.

The central bank has projected inflation based on consumer price index to grow to 6.6 percent this fiscal year, up from the earlier projection of six percent. Inflation stood at seven percent in the first six months of the current fiscal year.

The NRB has estimated that the country would see surplus of Rs 10 billion in balance of payment this year against the earlier estimate of Rs 16 billion.

The central bank, in the mid-tern evaluation also stated that the rate of broad money supply (M2) will remain at 16 percent, the same rate as its earlier projection.

To further liberalize foreign currency transactions, the Policy gives a nod for commercial banks to provide exchange transfer facilities for up to US$ 2,500 for miscellaneous purposes. There has been simplification over the opening of letters of credit (LC) as well. The

Policy introduced a provision to allow review of the LC on the basis of 'already shipped documents.'

The economy is expected to grow by 3.8 percent this fiscal year due to slower-than-expected rise in capital expenditure, growing power load shedding and its subsequent impact on industries, states the Policy. Due to steep fall in paddy production caused by adverse weather, the Policy said that the agriculture gross domestic product would creep up by a nominal 0.7 percent.

The Policy also envisages a plan to speed up the process pertaining to opening up the financial sector for foreign financial institutes. “The central bank has already prepared a study report over allowing branches of foreign banks to operate in Nepal allowing them to engage in wholesale banking transactions. Steps would be taken to implement the report,” states the policy.

In order to encourage banks to reopen their rural branches closed due to the conflict, the Policy states that contrary to the previous system, the banks do not need NRB's prior permission. “They can just send information of resumption of the branches' service to the NRB,” it said.

According to the Policy, the central bank purchased IRs 17.72 billion by selling US$ 390 million in the first six months this year to meet growing demand for Indian currency. Due to soaring trade deficit with India, the country has experienced paucity of Indian currency in recent periods.