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Kathmandu Wednesday May 30, 2001 Jestha 17, 2058.
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Cautious
welcome
Keeping the volatile political scenario at bay, the
Nepalese economy is moving ahead at a steady pace for the second consecutive year, all
right. If the much-hyped economic projections are anything to go by, the Nepalese economy
is expected to register a promising, and hopefully sustainable, growth rate of 6 per cent
by the end of the current fiscal year. But there is nothing much to gloat about over this
seemingly good news, as it is likely to be elusive. Gnawing problems on the macroeconomic
front, more precisely in foreign trade, are likely to overshadow such a rosy picture soon.
The major worry comes from the foreign trade front. Even
during the mid-1990s recession, both the components of foreign trade -export and import-
maintained a robust growth rate. Obviously, the credit for the upsurge, which our economy
is experiencing for the last two years, goes to this sector. But now it seems that things
are getting stormy here as well. The export, major foreign currency earner, is growing but
at a diminishing rate. During the first nine months of the current fiscal year, exports
grew by only 21.5 per cent as against 37.6 per cent during the corresponding period.
Meanwhile, imports that stood at 28.6 per cent last year have plunged dramatically to 6.9
per cent. The figure may be alluring to the trade pundits, who keep their eyes fixed at
the Balance of Payment, but surely it is not so for our economy as a whole.
Since a good part of the country’s import constitutes
capital goods and raw materials, the fate of the investment sector naturally depends on
the rise and fall of imports. Low import means less capital goods, dwindling investment
confidence and a slowdown in aggregate consumer demand. When the economy began to
downslide in the mid-nineties, it was immediately reflected in dipping imports. By all
accounts then, the tumbling imports could be an ominous indicator of our economy. If
things spin out of control, there will be yet another round of economic slowdown in the
next fiscal year. Things are equally gloomy on the domestic macroeconomic front. Thanks to
the populist budget and its ambitious regular expenditure growth, the economy is all set
to bear the brunt of widening fiscal deficit. Though the inflation rate has come down to
2.2 percent, this gives little cause to rejoice. Moreover, the figure could be fickle, due
to the fluctuations in India’s inflation rate that will drag Nepalese inflation rate
along the trend.
With the fiscal deficit of 8.42 billion rupees - a whopping
figure indeed - up by 35.3 percent compared to the last fiscal year’s figure, the
development front has once again become a major economic casualty. The Koirala government
which is very generous to government employees and security personnel, has failed to
invest much in development projects, the bedrock of a struggling economy. Private
investment - both domestic and foreign - is already at an all time low and if the
development expenditure continues to tumble, the economy is unlikely to get any lease on
life through the investment sector. Moreover, if the fiscal deficit widens further, it
could squarely hit the inflation rate and thereby the business climate. The Finance
Minister and officials are already into the business of preparing next year’s budget.
The budget preparation team has little maneuverability, as the Finance Minister himself
has admitted. If they manage to address some of the pressing economic problems, it would
indeed be a great achievement.
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