National 3 (Spotlight Weekly)

Gloomy Economics

To no surprise, the central bank's latest quarterly report card gives poor grades to the country's economy

By SANJAYA DHAKAL

It does not take an economist to say that the country's economy is in tatters. The wholesome gloom that has enveloped the entire country has not left the economy alone. From import and export to trade and consumption, almost all sectors have taken a beating in the last couple of years. The decline has been sharper and more intense of late.

Coming at such a time, nobody expected the economic review of the first quarter of the current fiscal year 2002/2003 (Jul/Aug till Sept/Oct) released by Nepal Rastra Bank (NRB) to paint a different picture.

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As such, the report makes a serious diagnosis of the nation's economic ills. Declining trade, plummeting exports, sluggish revenue mobilization and standstill development expenditure are the major characteristics highlighted by the review.

"The review only confirms what we have all been fearing - the economy is on a sharp downward trend," said an economist. "The extreme political instability, the climate of insecurity and the psychological gloom has badly affected all sectors of the economy."

The NRB report states that the total government expenditure during the review period has declined by 3.7 percent. It stood at Rs 14 billion as against a rise of 26.1 percent during the same period last year. Out of this total expenditure, regular spending rose by a meager 2.3 percent to reach Rs. 11.2 billion, compared to growth of 29.8 percent last year. On the other hand, development expenditure fell sharply by 29.2 percent to Rs.1.5 billion, compared to the rise of 1.1 percent last year.

The environment of insecurity and raging insurgency hit many development projects. The decline in development expenditure is the direct result of this. "At a time when the government is engaged in an intense fight with the rebels, the fall in development expenditure is no wonder," said the economist. Experts say this trend would have a long-term effect on the development of the country. The brakes put on the development efforts will be particularly painful for an under-developed country like Nepal.

The report also sounded alarm bells regarding the revenue mobilization, which fell by 3.1 percent to Rs 10.5 billion during the review period as against the growth of 16.9 percent last year. During the review period, foreign cash grants slumped by 42.9 percent to Rs 120.7 million as against the sharp decline of 71.7 percent last year. However, the non-budgetary receipts (net) increased by 17.9 percent to Rs.557.6 million.

The sluggish industrial production and discouraging demand resulted in exports plunge. During the review period, the total exports fell by 20.5 percent to Rs 10.7 billion compared to the rise of 2.3 percent last year.

Exports to India declined by 31.5 percent to Rs.5.6 billion, compared to the rise of 41.6 percent last year. Likewise, the exports to third countries came down by 3.9 percent to Rs.5.2 percent. The export of jewelry and readymade garments to third countries rose by 37.7 and 35.5 percent respectively, whereas those of woolen carpets, pashmina and tanned skin declined by 32.8, 31.8 and 71.8 percent respectively.

However, total imports during the review period grew marginally by 1.8 percent to Rs.27 billion as against the growth of 2.3 percent last year. Consequently, the trade gap has widened by 25 percent to Rs.16.3 billion compared to the growth of only 2.2 percent last year.

Foreign exchange reserves, however, increased by 2.3 percent to Rs.107.23 billion as at mid-October. The share of convertible currencies improved to 79.4 percent compared to the same period last year.