Economy signals gloomy outlook

Economy signals gloomy outlook
eKantipur.com, 9-Jul-2007
BY PREM KHANAL

Fiscal year 2006/07 is ending in a week's time on a pessimistic note. Worst, yawning growth, worsening fiscal position, murky investment climate and messy politics all have combined for a grim outlook.

Besides few, almost all the vital sectors of economy are in sorry state, indicating that much-needed economic revival is something hard to achieve any time soon.

Most distressful is the dwindling economic growth rate, which has slipped to 2.29 percent, lowest since the country recorded a negative growth in 2001/02 and half of the target.

Agriculture sector, which contributes nearly 33 percent to the national economy, is estimated to grow by 0.62 percent -- lowest in 12 years. The agriculture growth rate that is less than the annual population growth reflects how badly food availability is shrinking.

The plight of industrial sector, which has been sandwiched between terai unrest and labor agitations, is no less painful. Though the government predicts the manufacturing sector to grow by 2.16 percent, many doubt it owning to the fact that terai unrest was at its height on the last quarter. “The growth rate will significantly go down, once the annual data is computed,” said Narendra K Basnet, vice president of Confederation of Nepalese Industries.

The problems in foreign trade have deepened further due to widening trade deficit. The continuously shrinking major exports like carpet, garment and pashmina and double digit growth in imports has widened the trade deficit to cross Rs 100 billion mark in the first ten months. The declining growth rate of remittance, which has shrunk to 3.1 percent against last year's whopping 47 percent growth, has emerged as a matter of concern. However, officials say that the decline is solely due to nearly 12 percent appreciation of domestic currency against the US dollar.

The poor budgetary operation represents another thick cloud hovering over the economy. Like the past years, the budget has missed expenditure targets. It had a target of expending Rs 143.92 billion, but the actual expenditure is likely to remain at around Rs 135 billion - almost 94 percent.

The capital expenditure, which mainly finances development activities, is likely to remain around Rs 36 billion, which is 80 percent of the yearly allocation. Like past years, the low development spending is mainly due to slow progress made at major development projects like Marsyangdi Hydropower Project, Melamchi Water Project, among others.

Likewise, the recurrent expenditure is likely to cross Rs 82 billion, which is almost 19 percent more than last year's similar expenditure. The government had allocated Rs 83.8 billion for the recurrent expenditure but it was raised to Rs 88 billion during midterm review to manage huge expenditure for Constituent Assembly (CA) poll that was planned in May.

This year also saw a record non-budgetary expenditure of around Rs 7.50 billion, which according to an official was managed by diverting funds of under performing projects and CA poll budget. The releases of Rs 1.12 billion for managing Maoist cantonments, and financing their perks and other facilities, Rs 1.10 billion for recruiting 8,000 more policemen were the major absorbers of unplanned expenditure.

Despite all grim scenarios, some bright spots do stand out. Revenue mobilization remained historically strong this year. The total revenue is likely to hit the target, thanks to strong growth seen in excise duty, income tax and VAT.

Inflation has eased to 6.5 percent though it was slightly higher than the budgetary target and the total foreign currency reserve has increased to Rs 171 billion, enough to support imports of 11.1 months.