Major highlights (related to macroeconomy) from Economic Survey 2011/12. Let me point at the outset that the figures for 2011/12 are preliminary estimate based on the first eight months data of the fiscal year.
Economic activities:
- Real GDP growth was 4.6 percent, up from 3.9 percent in 2010/11 and 4.3 percent in 2009/10. Thanks to good agriculture production (it might not happen next year due to late monsoon and shortage of fertilizer during peak planting season). Agriculture sector grew at 4.9 percent, industry sector 1.6 percent, and service sector 3.6 percent. Industry sector slowed down this year compared to last year. It is also the most important in terms of generating employment and boosting sustainable growth rate.
- Per capita GDP was US$735, up from US$712 in 2010/11. Per capita disposable income was US$931.
- As a share of GDP, consumption, domestic savings, GFCF and gross investment were 90 percent, 10 percent, and 19.6 percent and 32.8 percent.
- Inflation is projected at 7.7 percent, down from 9.6 percent the previous two years. Frankly, this is bogus. The domestic supply-side constraints and initial rise in international fuel prices (and also the depreciation of rupee against dollar, which makes imported goods expensive) have upped market prices. Vegetable prices have risen by more than 50 percent. There is no way inflation will remain at 7.7 percent. I am not trusting this projection.
| Economic Survey 2012 | 2011/12P | 2010/11 | 2009/10 |
| Real GDP growth (%) | 4.6 | 3.9 | 4.3 |
| Agriculture | 4.9 | 4.5 | 2 |
| Industry | 1.6 | 2.9 | 4.1 |
| Service | 3.6 | 3.6 | 5.8 |
| Per capita GDP (US$) | 735 | 712 | 610 |
| Per capita disposable income (US$) | 931 | 876 | 759 |
| Consumption/GDP | 90 | 91.4 | 88.5 |
| Gross Domestic savings/GDP | 10 | 8.6 | 11.5 |
| GFCF/GDP | 19.6 | 21.2 | 22.2 |
| Gross investment/GDP | 32.8 | 32.5 | 38.3 |
| Total population (million) | 27 | 26.6 | 26.3 |
| Inflation % (CPI) | 7.7 | 9.6 | 9.6 |
Public finance:
- Revenue and expenditure growth were higher than last year’s. However, expenditure growth was higher than revenue growth. This is not sustainable. No wonder, budget deficit reached 4.2 percent of GDP from 3.6 percent of GDP in 2010/11. Note that the total revenue contains domestic revenue and foreign grants. Nepal is getting increasingly dependent on foreign aid to finance development activities and also to meet capital expenditure.
- Foreign aid as a share of development expenditure has always been high. The highest was 86.53 percent in 2004/05. Total foreign aid in 1975/76 was Rs 0.51(grant Rs 0.36 billion and loan Rs 0.15 billion) and in 2009/10 it was Rs 49.76 billion (grant Rs 38.55 billion and loan Rs 11.22 billion). In 2009/10, total actual expenditure and total tax revenue were Rs 259.69 billion, Rs 179.95 billion. Development expenditure was Rs 151.02 billion in 2009/10.
- Recurrent expenditure increased by 50.8 percent, up from 12.8 percent in 2010/11. Meanwhile, capital expenditure decreased by 41.7 percent. This means that the government is unable to spend money in the stuff that is essential in creating strong base for economic growth. Domestic revenue is not enough to finance recurrent expenditure. This is bad financial planning and management.
- Debt servicing (principal and interest) increased by 19 percent, up from 5.4 percent in 2010/11.
- As a share of GDP, total revenue, tax revenue, total expenditure, recurrent expenditure, capital expenditure, foreign aid (grant plus loan) were 15.5 percent, 13.2 percent, 13.5 percent, 16.5 percent, 4 percent, and 5.4 percent respectively.
| Economic Survey 2012 | 2011/12P | 2010/11 | 2009/10 |
| Revenue growth (%) | 20.5 | 11 | 25.4 |
| Expenditure growth (%) | 23.8 | 13.7 | 18.2 |
| Recurrent expenditure growth (%) | 50.8 | 12.8 | 18.2 |
| Capital expenditure growth (%) | -41.7 | 19.5 | 23.5 |
| Principal payment growth (%) | 14.7 | -6.6 | -2.1 |
| Debt servicing (principal & interest), % | 19 | 5.4 | 5.3 |
| Revenue/GDP | 15.5 | 14.6 | 15.1 |
| Tax/GDP | 13.2 | 12.6 | 13.1 |
| Expenditure/GDP | 23.5 | 21.6 | 21.8 |
| Recurrent expenditure/GDP | 16.5 | 12.4 | 12.7 |
| Capital expenditure/GDP | 4 | 7.9 | 7.6 |
| Debt servicing (principal & interest)/GDP | 2.3 | 2.2 | 2.4 |
| Foreign aid (grant + loan)/GDP | 5.4 | 4.2 | 4.2 |
| Budget deficit/GDP | 4.2 | 3.6 | 3.5 |
Financial sector:
- As a share of GDP, domestic credit, private credit, money supply and fixed and savings deposit were 65 percent, 52.7 percent, 69.2 percent and 53 percent. All of these except for domestic credit are an increase from last year.
| Economic Survey 2012 | 2011/12P | 2010/11 | 2009/10 |
| Domestic credit/GDP | 65 | 66.6 | 66.7 |
| Private credit/GDP | 52.7 | 53.1 | 53.5 |
| Money supply (M2)/GDP | 69.2 | 67.3 | 68.8 |
| Fixed and saving deposit/GDP | 53 | 51 | 51 |
External sector:
- Merchandise exports and merchandise imports increased by 14.8 percent and 15 percent respectively. Trade deficit increased by 15 percent. Again, exports growth has been lower than imports growth. Here are the reasons why exports of Nepal are declining.
- As a share of GDP, merchandise exports, merchandise imports and trade deficit were 4.7 percent (same as last year), 29.2 percent (increase from last year), and 24.5 percent (increase from last year). Compare these with the figures in 2001/02: exports, imports and trade deficit were 10.1 percent, 25.3 percent 15.1 percent respectively of GDP.
- As a share of GDP, tourism income and remittances were 2 percent (higher than in 2010/11, but lower than in 2009/10) and 21.2 percent (higher than previous years).
- Current account balance was 2 percent of GDP (it was negative the past two years). Balance of payments was Rs 80 billion (higher than previous years). Reason: higher remittance inflows and net transfers.
- Forex reserves have reached Rs 386.96 billion, which is enough to finance 9.2 months of merchandise goods import and 8.3 months of goods and services import.
- Nepal’s exchange rate against US dollar depreciated by around 10 percent to US$1= NRs 79.4. Still Nepal is unable to boost exports (no inventory of goods to take advantage of weak rupee).
| Economic Survey 2012 | 2011/12P | 2010/11 | 2009/10 |
| Merchandise exports growth (%) | 14.8 | 5.8 | -10.2 |
| Merchandise imports growth (%) | 15 | 5.8 | 31.6 |
| Trade deficit growth (%) | 15 | 5.8 | 44.6 |
| Merchandise exports/GDP | 4.7 | 4.7 | 5.1 |
| Merchandise imports/GDP | 29.2 | 28.9 | 31.4 |
| Trade deficit (merchandise)/GDP | 24.5 | 24.2 | 26.3 |
| Tourism income/GDP | 2 | 1.8 | 2.4 |
| Remittance/GDP | 21.2 | 18.5 | 19.4 |
| Current account balance/GDP | 2 | -0.9 | -2.4 |
| Balance of payments (Rs billion) | 80 | 2.2 | -3.3 |
| Forex reserves (Rs billion) | 386.96 | 272.2 | 268.9 |
| Goods import finance by reserves (months) | 9.2 | 8.4 | 8.7 |
| Goods and services import finance by reserves (months) | 8.3 | 7.3 | 7.4 |
| Exchange rate (US$/NRs ) | 79.4 | 72.3 | 74.5 |
State of public enterprises (PEs):
- Out of 37 PEs, 21 generated profit and 14 were in loss. Two (Nepal Engineering Consultancy Services Center Limited and Hydropower Investment and Development Company Limited) did not conduct any business. [Question: Why are defunct PEs still sucking out taxpayer’s money?]
- Net profit decreased by 36.7 percent to Rs 6.67 billion in 2011/12. The top profit making PEs were Nepal Telecom (Rs 12.12 billion) Agriculture Development Bank (Rs 2.36 billion), Rastriya Banijya Bank (Rs 1.76 billion), Rastriya Beema Sansthan (Rs 1 billion) and Civil Aviation Authority (Rs 742.6 million).
- The top loss making PEs were Nepal Electricity Authority (Rs 6.09 billion), Nepal Oil Corporation (Rs 5.11 billion), Nepal Oriend Magnesite (Rs 428.8 million), Janakpur Cigarette Factory (Rs 218.1 million), and Nepal Drugs Limited (Rs 198.9 million).
- PE gave Rs 49 billion in dividends to the government, of which Rs 5.5 billion was contributed by Nepal Telecom.
- Reasons government officials give for the dismal performance of PEs: political interference, overstaffing, unproductive human resources, bureaucratic hurdles in the procurement process and slow pace of modernization.
