NATIONAL10 [RELIGION (Spotlight Weelky)]

Promising Trends

The latest report by the Asian Development Bank says Nepalese economy is making progress despite many hurdles

By A CORRESPONDENT

Despite on-going political instability and widespread Maoist insurgency, Nepalese economy shows encouraging signs and has performed better compared to previous years, a recent report by a leading multi-lateral donor agency said. The Asian Development Outlook 2001 prepared by the Manila-based Asian Development Bank (ADB) said the Gross Domestic Product (GDP) in Nepal increased by 6.4 percent in 2000, up from 4.4 percent in 1999. Continued sound macroeconomic management, coupled with another year of relatively strong agricultural growth, is expected to support growth of 5-5.5 percent in Nepal's economy in 2001, said the report.

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Given appropriate economic policies, Nepal has potential for growth rates exceeding 5 percent 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, said the report. The report further said in the calendar year 2001, agricultural growth is expected to decline slightly to about 4 percent. Over the same period, industrial growth is also expected to moderate somewhat to 7-8 percent (down from 8.7 percent in 2000). The service sector growth is expected to remain stable at about 6 percent.

The report predicted that the Nepal government's ambitious development expenditure and revenue targets in 2001 will be difficult to achieve, especially since pay rises and a voluntary early retirement scheme were introduced for civil servants. (The report doesn't mention about the government's decision to mobilize army personnel to check illegal trade). Development expenditures are projected to grow by 45 percent financed mainly by increased foreign grants, while domestic revenues are projected to grow by 21 percent.

Launching the annual report here last week, resident representative of the Bank in Kathmandu Dr. Richard Vokes said the medium term outlook for sustained growth of the Nepalese economy looked positive if the government pushed forward with the implementation of the second generation of economic reforms as promised by itself.

The ADO 2001 projects the current account deficit to rise slightly in 2001 as aid-related inflows continues to increase. Strong economic growth in India will continue to bolster Nepal's exports. However, exports to other countries, in which garments have been important, will face increased uncertainty over the medium term given the gradual removal of quotas as part of the WTO agreement on textiles and clothing.

Noting the importance of agriculture development in addressing poverty in Nepal, the ADO notes that the government's continued commitment to the Agriculture Perspective Plan is critical. Another key to poverty reduction is the introduction of meaningful civil service reform and governance reforms.

Given the economy's limited access to foreign capital markets, the savings rate is too low to support the investment needed for sustainable reduction in poverty. The financial sector is another key area where extensive reforms are needed, the report said.