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.