Tuesday, April 29, 2014

NEPAL: CBS forecasts FY2014 GDP growth rate to be 5.2%

The Central Bureau of Statistics (CBS) has come up with preliminary estimates of national accounts for FY2014. It projects real GDP growth (basic prices) at 5.2% in FY2014, up from 3.5% revised estimated for FY2013 but lower than the government’s target of 5.5% targeted in the FY2014 budget. The main driver of growth is projected to be services sector (growth of 6.1%), followed by agriculture sector (growth of 4.7%, up from a sluggish 1.1% in FY2013) and industry sector (growth of 2.7%).

The size of the economy is projected to be US$19.4 billion in FY2014, slightly up from US$19.2 billion in FY2013. In Nepalese rupee, the size of the economy in FY2014 is projected to be NRs1.9 trillion.

GDP growth rate (basic prices)
Composition of GDP (%)

GDP (current producers prices)

GDP, NRs billion
GDP, $ billion

In terms of contribution to GDP growth, 62% is expected to come from services sector, followed by 31% from agriculture sector and the rest 7% from industry sector. In FY2013, the unfavorable monsoon and the shortage of chemical fertilizers brought down agriculture sector’s contribution to 11%, the same as industry sector’s contribution. The rest 78% was of FY2013 GDP growth came from services sector. 

Among the sub-sectors, wholesale and retail trade is projected to grow by 8.8%, up from 6.8% in FY2013. It is followed by other services sub-sectors such as transport, storage and communication (7.5%), hotels and restaurants (7.1%), and education (6%) among others. Real estate, renting and business sub-sector is projected to grow by 3%, marginally up from 2.7%. Agriculture and forestry sub-sector is projected to grow by 4.7%, up 1.1% in FY2013.

While manufacturing growth is projected to slow down to 1.9% from 3.7% in FY2013, construction growth is projected to recover, albeit slowly, to 2.9% from 2% a year earlier. The share of manufacturing in GDP is continuing to decline, reaching an estimated 6.1% of GDP in FY2014. Similarly, industry sector is also projected to shrink to 14% of GDP from 14.6% of GDP in FY2013.

While gross national savings are projected to increase (46.4% of GDP in FY2014) on account of the high remittance inflows, gross domestic savings are declining (8.9% of GDP in FY2014) reflecting the high consumption (91.1% of GDP in FY2014). Exports of goods and services are projected to recover slightly to 12.1% of GDP from 10.7% of GDP in FY2013, but the larger increases in imports of goods and services further widened trade deficit (goods and services).

Per capita GDP in local currency is estimated to grow by 12.4%, up from 9.4% in FY2013. However, due to the depreciation of Nepalese rupee against the US dollar, per capita GDP in US$ terms is projected to decline. In FY2014, per capita GDP is projected to be US$703 (NRs69,919). The high inflow of remittances is seen in the large different between per capita GDP (and also per capita GNI, which includes net factor income from abroad as well) and per capita GNDI (which includes net transfers from abroad on top of per capita GNI). In FY2014, per capita GNI and per capita GNDI are projected to be US$717 and US$967 (NRs71,305 and NRs96,155, respectively).

Few explanations to note here:
  • Real estate sector is struggling to grow as the 25% lending cap to real estate and housing fixed by central bank is helping to lower BFIs exposure to this sector.
  • The high growth of services activities are primarily driven by remittances-backed consumer demand of mostly imported goods. Hence, services sector activities are the largest contributor to GDP growth and also a major revenue generator for the government.
  • The favorable monsoon and timely availability of agricultural inputs jacked up agriculture sector growth. The MOAD projected paddy, maize and millet production to grow by 12%, 9.9% and 6.1%, respectively. In FY2013, while paddy and maize production decreased by 11.2% and 9.3%, respectively, millet production grew by a mere 2%.
  • The less than expected growth of construction sector indicates the slow capital expenditure despite the timely full budget in FY2013.
  • Despite the improving political environment, the manufacturing sector failed to pick up. In fact, its growth rate is projected to decline to 1.9% from 3.7% in FY2013. It reflects the structural bottlenecks and persistent supply-side constraints.
Starting this year, the CBS has also come up with quarterly estimates of GDP. It is supplying seasonally unadjusted and seasonally adjusted quarterly data. This is a good initiative. Now, the CBS should work on producing timely quarterly data (for FY2104, the first two quarters data are produced so far) and the annualized growth rate based on these.

Earlier, the ADB, the WB, and the IMF projected GDP growth at 4.5%.