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VOL. 27, NO. 39, June 13 , 2008 (Jestha 31 2065 B.S.)
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Good And Bad Signs
After years of becoming stagnant, the latest estimates show signs of economic recovery. But the rate of inflation is surging dangerously ahead
By SANJAYA DHAKAL
For the past couple of years, Nepal has suffered from continually decreasing rate of growth in its economy as the nation passed through severe conflict and political instability.
However, a recent report in newspapers quoting the fresh estimations by the Central Bureau of Statistics (CBS) have given hopeful indications about the recovery of battered economy.
The CBS has estimated this year’s economic growth will be 5.56 percent – the highest rate witnessed by the country in the last seven years. The growth has been pushed b y rise in agriculture production, reforms in service sector and growth in financial transactions.
The CBS has also estimated that the per capita income has increased to US$ 470 – up from $ 390 last year. “Due to lesser bandh, strikes and growth in retail and wholesale trade, the rate of expansion of economy has picked up,” government officials have said, adding that the rate to reach 6 percent by the end of the fiscal year.
The CBS will soon make its fresh estimations public.
Last year the rate of growth was at 2.58 percent. This year the government had estimated the growth to reach 5 percent at its budget.
The major factor for increasing growth rate is the substantial increase in agriculture production.
Even as there is global crisis of food and spiraling rise in food prices, in Nepal this year the production of paddy increased by 16 percent. The overall growth rate of production of food grains is 7.26 percent and the overall growth rate of agriculture is 5.65 percent.
The agriculture contributes 32 percent to GDP. Financial institutions and service also grew by double digit at 13.1 percent because of entry of new institutions – three dozen of them entered the market in one year. Five commercial banks with Rs 1 billion investment have also come. Deposit and loan, both, have grown.
The growth rate of hotels and restaurants is 7.55 percent triggered by growth in tourism and increase in per capita income. Income from tourism increased by 75 percent. Handsome rise in remittance income has created more demands for industrial products. Wholesale and retail sector also grew by 6.46 percent. The sector of community and individual service grew by 11 percent. Health sector is set to expand by 7.39 percent this year.
However, the growth of industrial sector is disappointing. Due to collapse of readymade garments and exports of vegetable ghee, the industrial production grew merely by 0.18 percent.
Unfortunately, the positive signs for economic recovery are under the threat of being overrun by accelerating rate of inflation.
Threatening the macroeconomic stability, the rate of inflation this month rose to 8.9 percent from 7.6 percent a month ago.
Pushed by global price rise in foodstuffs and petroleum products, Nepal is staring at the prospects of double digit rate of inflation, which is becoming more likely since any new adjustment in the petroleum price in the domestic market – which has already been long overdue – could easily push the rate of inflation to around 15 percent.
Such a high rate of inflation could eat up any positive signs of economic recovery.
