Monday, July 13, 2009

Nepalese economy in trouble-- Economic Survey 2008/09

Almost all the economic indicators registered negative growth rate in the last fiscal year, according to Economic Survey 2008/09 release by the Ministry of Finance (see the tables below). The forecast for this fiscal year does not look any better. The plunge in manufacturing and agricultural sectors is very troubling for a struggling economy. Troubles in growth rate, balance of trade deficit, inflation rate, national debt…

The economy grew at 3.8 percent against a forecast of around 7 percent (last year the growth rate was 5.3 percent). GDP growth rate is estimated to be 4.7 percent next fiscal year (2009/10). GDP per capita reached US$473 (Thank God, Nepal remittances inflow continued to increase!). Agricultural sector grew at 2.1 percent (last year it was 4.7 percent) and non-agricultural sector grew at 4.8 percent (last year it was 5.7 percent). Inflation rate hit 13.1 percent in mid-March 2009 as against 7.2 percent in mid-March 2008. GDP deflator (a measure of the level of prices of all new, domestically produced, final goods and services-- expressed as (nominal GDP/real GDP)/100) rose from 6.3 percent to 12.2 percent.

Summary of macroeconomic indicators:

Annual growth rate of GDP by economic activities:

As a percentage of GDP, domestic savings is down to 8 percent from 11.21 percent last fiscal year. Thanks to increasing remittances gross national savings has increased to 32.32 percent (% of GDP) from 31.53 percent last fiscal year. Exports have increased by around three percentage points to 15.70 percent from the first eight months of last fiscal year’s 12.08 percent. However, imports have increased to 37.42 percent from last fiscal year’s 32.66 percent, thus increasing the hole in balance of trade (BoT). Note that balance of payments (BoP) has been in positive territory. Revenue/GDP increased to 14.8% from 13.2% last fiscal year but total government expenditure/GDP increased to 22.2% from 19.7% last fiscal year. Budget deficit/GDP decreased to 3.8% from 4.1% last fiscal year.

Gross fixed capital formation as a percentage of GDP barely increased to 21.25 percent from 21.11 percent from last year. On gross fixed capital investment front, government investment/GDP was 4.1 percent (up from 3.1% last fiscal year) and private investment/GDP was 17.1 percent (down from 18% last fiscal year). Gross investment/GDP stood at 29.7 percent (down from 32.8% last fiscal year). Similarly, the gap between gross domestic savings and gross investments/GDP increased to -21.7% from -21.6% last fiscal year. The resource gap-- saving-investment gap (gross domestic savings minus gross domestic fixed capital formation)-- (% of GDP) was 2.60 percent from -0.26 percent last fiscal year (again, thanks to increasing remittances).

The ratio of investment to GDP decreased to 29.7 percent to 31.8 percent from last fiscal year. Exports/GDP increased to 21.7 percent from 20.6 percent from last year. Due to impressive revenue collection, revenue mobilization/GDP increased to 14.8 percent against 13.2 percent last fiscal year. Outstanding debt/GDP increased to 41 percent from 39.6 percent (first eight month of fiscal year), showing that expenditure continue to outweighed national income. Foreign debt/GDP also increased to 28.5 percent from last fiscal year’s 26.4 percent. Meanwhile, domestic debt/GDP actually decreased to 12.5 percent from 13.2 percent in last fiscal year.

Well, the government admits that it is doing a bad job managing the economy:

A big question mark has emerged on our skill of overall economic management in a situation where the Nepalese economy entangled in the vortex of economic sluggishness amidst the double-digit price rise thereby adversely affecting the purchasing power and living standard of the Nepalese people. Hence, there is the necessity of wider reform initiatives on development efforts, investments, and regulatory areas for expanding the economy. The nation is also being made to bear adverse supply shock due to frequent Bandhs, chakka jams, strikes etc. For this, national imperative is making sufficient legal arrangements and ensuring effective enforcement of those provisions for completely banning Bandhs, strikes especially against transportation and movements of the people for allowing the country's economy move ahead in a smooth and natural way, and also providing relief to the people's livelihood.

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