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Kathmandu Friday April 20, 2001 Baishakh 07, 2058.
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Economy expected to grow by
5.5 pc: ADB
Post Report
KATHMANDU, April 19 - Continued sound
macroeconomic management, coupled with another year of relatively strong agricultural
growth, is expected to support growth rate of 5 to 5.5 per cent in the country’s
economy in 2001, according to the Asian Development Outlook 2001 (ADO 2001), released
today by the Asian Development Bank (ADB).
Launching the ADO 2001 here today, Dr Richard
Vokes, Resident Representative of ADB to Nepal, said if the government, as promised,
pushed forward with the implementation of the second
round of economic reforms, then the medium-term outlook for sustained growth of the
economy is positive.
Apart from the need to continue and sustain
reforms in the agricultural sector, civil service and financial sector reform need to be
at the core of the government’s broad-based reform agenda, he said.
The newly launched ADO 2001 notes that strong
recovery in the agricultural sector in 2000 boosted the economy’s short-term
prospects, though long-term sustained growth will depend on progress implementing the
government’s broad-based reform agenda.
The performance in 2001 also builds on the
strong outcome in 2000 when real GDP increased by 6.4 per cent (up from 4.4 per cent in
1999) fueled by a strong agricultural recovery. A favorable monsoon season and wider use
of fertilizer contributed to growth of 5 per cent in agriculture in 2000, when industries
increased by 8.7 per cent, led by a 13 per cent growth in manufacturing.
The ADO 2001 mentions that, given appropriate
economic policies, Nepal has the potential for growth rates exceeding 5 per cent a year.
However, actual performance is still vulnerable to changes in weather and the Indian
economy given India’s dominance as a trading partner and Nepal’s narrow
industrial base.
While inflation rose by just 3.5 per cent in
2000, owing to stability in prices of food, the ADO 2001 forecasts moderate inflation over
the next few years in the absence of any major external shocks to the economy. However,
inflation is expected to rise somewhat from the low level of 2000 to around 5.5 per cent
in 2001.
According to ADO 2001, the government’s
ambitious development expenditure and revenue targets in 2001 will be difficult to
achieve. Development expenditures are projected to grow by 45 per cent, financed mainly by
increased foreign grants, while domestic revenues are projected to grow by 21 per cent.
Actual revenue performance will depend on the effective implementation of the value-added
tax, as well as the success of current efforts to boost customs and income tax revenues.
The report projects the current account deficit
to rise slightly in 2001 as aid-related inflows continue to increase. After registering a
slight surplus in 1999, Nepal’s current account deficit increased to 1.5 per cent of
GDP in 2000 due to strong growth in imports.
Given the majority of the poor in Nepal live in
rural areas, the ADO 2001 notes the importance of agricultural development in addressing
poverty. The government’s continued commitment to the Agricultural Perspective Plan
is therefore critical. It is also critical that the government continue to push forward
with policy reforms within agriculture so as to further encourage private sector
participation in the sector.
The report also highlights the need to boost
domestic resource mobilization. "Given the economy’s limited access to foreign
capital markets, the savings rate is too low to support the investment needed for
sustainable reductions in poverty," it says.
The ADO 2001 has also identified civil sector
reform and governance reform as other key areas that affect poverty.
Finally, apart from a special chapter on Asia’s
Globalization Challenge, the ADO 2001 features an assessment of economic trends and
prospects for the world and for the developing economies of Asia and the Pacific.
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