During the last fiscal year 2019-2020 ended in mid-July, Nepal suffered the first economic contraction in 37 years as social distancing measures and blockages linked to Covid-19 crippled the country.
A slow recovery in the current 2020-21 fiscal year is expected to take the growth rate to 2.7%, supported by a favorable monsoon and an optimistic outlook that the Covid-19 related disruptions will subside and spending government aid will materialize, according to a World Bank. report released Wednesday said.
According to the report entitled South Asia Economic Focus Spring 2021: South Asia Vaccinates, Nepal would gradually recover and reach a growth rate of 3.9% in 2021-2022, then 5.1% by 2022-2023, on the basis of a country’s baseline projections and the global roll-out of immunization and a gradual recovery in international tourism, which is expected to fully recover after two years.
“There is a risk that political uncertainty, if prolonged, could undermine investment sentiment,” The report noted.
Another uncertainty on the way to a faster recovery of the Nepalese economy is the new waves of Covid-19 infections in neighboring India.
“Sources of risk to the outlook include possible new waves of Covid-19, as well as heightened political uncertainties, following the dissolution of the Lower House of Parliament in December 2020 and the Supreme Court ruling of the restore in February 2021 ”, states the report which included activities until March 25, 2021.
The government has yet to revise the growth forecasts it initially made.
Even though the Nepalese economy was clearly headed for disaster as the months-long lockdown brought life to a standstill, baffling experts who struggled to make plausible predictions, the then finance minister, Yuba Raj Khatiwada, had set a very ambitious growth target of 7%.
Nepal imposed a full lockdown on March 24, a decision the government made after finding only the second case of Covid in the country.
“It’s still uncertain. But given that Nepal will not experience new waves of Covid-19 infections and consumption and demand increase, we have roughly projected Nepal’s economic growth rate at 5% for this fiscal year, ”he said. said Hem Raj Regmi, deputy director general of the Central Bureau of Statistics.
“This is mainly due to the growth of the agricultural sector, which contributes 27% to the national economy. ”
According to Regmi, the manufacturing and service sectors will see a gradual recovery due to weak demand. “Our economy is on the right track,” he said.
“5% growth seems more reasonable to me,” said economist Biswo Poudel.
“With the exception of transportation and hotels, the construction and manufacturing industries have recovered. Imports and tax collection are back to normal, and it’s a sign that the economy is getting back on track, ”Poudel told the Post.
Nepal last week eased travel rules by removing the quarantine requirement for foreign tourists. Economists say the move will help the country’s tourism recover to some extent.
But the World Bank has warned that new variants of the virus could thwart Nepal’s plans to gradually open up to tourism.
According to the Central Bureau of Statistics, in the fourth quarter of the last fiscal year 2019-2020, the country’s economic growth rate, or output of gross domestic product, fell 15.4% compared to the same period in 2018-19. , which resulted with a negative growth rate of 1.99% year-on-year.
The annual growth rate fell into negative territory for the first time in 37 years. By 1982-83, Nepal’s economic growth rate had fallen to -2.97%, according to World Bank data.
This was the seventh negative growth rate Nepal has experienced since the former Ministry of Economic Planning. started to compile national accounts statistics for 1961-62.
According to the World Bank, industrial activities are expected to remain below pre-pandemic levels until early 2022-2023.
Nepal’s growth averaged 4.9 percent over FY 2008-09 to 2018-19, supported by remittances but constrained by structural vulnerabilities and periodic shocks.
Natural disasters, such as the April 2015 earthquake and recurrent floods and landslides, and external developments, such as border closures, trade disruptions and the recent pandemic, have depressed growth and have affected livelihoods, according to the report.
While the lockdown impacted all sectors of the economy, it disproportionately affected workers engaged in subsistence activities, who make up more than half of the country’s workforce.
International border restrictions and economic downturns abroad have also forced thousands of Nepalese migrants to return home, increasing the risk that many households that depended on remittances and informal sector jobs could fall back into poverty. .
A nationwide lockdown from March to July 2020 impacted economic activity in the last four months of 2019-2020. As a result, production contracted by around 1.9% in the last fiscal year. Wholesale and retail trade, tourism, transport and related services such as hotels and restaurants, all of which are important growth engines, have been particularly affected.
The World Bank said that in the first half of the 2020-2021 fiscal year (mid-July 2020 to mid-January 2021), growth remained sluggish, as tourism stalled and the private investment was constrained by risk aversion and uncertainty.
However, signs of recovery were seen in wholesale and retail trade, transport and financial services, as containment measures were gradually relaxed. Moderate demand and adequate food supply have brought year-on-year consumer price inflation to a low of 3.7% in three years, according to the report.
Given the modest levels of foreign direct investment, external concessional loans financed the current account deficit. Official foreign exchange reserves reached $ 11.3 billion in mid-January 2021, the equivalent of 11.3 months of imports.
A recent World Bank Covid surveillance survey suggests that the economic slowdown linked to the pandemic has had a major impact on jobs and incomes, with more than two in five economically active workers reporting job loss or prolonged absence work in 2020.