National 6 (Spotlight Weekly)

Toward Recovery

Owing to a peaceful atmosphere, the economy is moving toward recovery

By A CORRESPONDENT

The last two years had been nightmarish for the Nepalese economy. Due to the breakdown in peace and security, all factors of economy were on the downward trend. The production, supply, investment, export, import all were showing negative trends.

However, the recent figures released by the UN-Economic and Social Commission for Asia Pacific (ESCAP) stated that Nepal's GDP growth rate, which has currently dipped down to 0.8 percent, is estimated to recover to 1.5 percent in 2003 and to accelerate to 3.5 percent by 2004.

Vegetables : Rising prices

The figures are music to the government as well as the business community. But there is a tag attached to this whole positive projection. The estimated projection will translate into reality only if the "improved law and order situation, favorable weather conditions and a strong external sector performance" will continue.

Nepal experienced a sharp fall in economic growth from an average annual growth rate of 5.3 percent in 1999-2001 to 0.8 percent in 2002, states the report released last week in the capital. According to the survey, the overall balance of payment surplus of 38 million US dollars in 2001 was reversed in 2002 when balance of payment deficit reached 77 million US dollars.

"Restructuring and privatization efforts continue to be constrained , as per the survey, by the fiscal liabilities of public enterprises. Despite increased migrant remittances, which grew by 8 percent in 2002, the current account deficit was 6 percent of GDP," said Ram Babu Shah, national information officer of United Nations Information Center (UNIC). He, however, said that there were positive prospects ahead with slowing import growth, a recovery in tourism and a steady rise in inward remittances.

The favorable atmosphere has, over the recent period, triggered growth in the economic activities. This, in turn, has helped in the recovery of the economy that was faltering for the last two years.

The growth in industrial production, demand of consumer goods, construction materials and services and import, witnessed since the middle of the current fiscal year has helped in this recovery. The economic recovery will speed up due to the ceasefire and prospects of growth in world economy, say experts. "We have seen signs of recovery as rising demands have pushed the production," said Binod Bahadur Shrestha, acting president of Federation of Nepalese Chamber of Commerce and Industry. The demand of consumer goods like biscuits, noodles and electronic equipment has risen by 10 percent. But the rising prices of commodities are feared to push the inflation rate. Even the ESCAP survey states that the inflation rate, presently at 2.9 percent, could climb to 4.5 percent in 2003.

The prices of essential commodities like rice, pulses and vegetables have risen by as high as 20 percent in the days after the government hiked the price of petroleum products. Traders have hiked the price of the commodities citing increased cost in their transportation and delivery. The prices of foodstuffs, fresh vegetables, fruits and readymade foods increased by 10 to 20 percent.

Traders have warned that the prices would further escalate. "This is only an initial impact. As we still have old stocks, the prices will further rise once we transport new ones," said Ganga Bahadur Manandhar, president of Nepal Retail Traders' Association. Before the hike in the price of petroleum products, the cost of transporting a truck-load of commodities was Rs.5000 to Rs.6,000 which has now increased by another Rs.2000 to Rs. 3000.The price rise is expected to put pressure on the inflation rate this year.

Besides, the current truck-strike in India could have its own toll on Nepalese economy. As the strike does not appear to end soon, it could hamper the supply of goods into Nepal and could trigger further price rises.