Economic backdrop poses challenges to meet targets

The government has revised down the economic growth projected target twice this year. In the monetary policy for this year, the overall economic growth target was set at 5.5 percent before it was revised down to 4.2 percent in the Mid-term review of budget and then revised down again to 3.6 percent in the Annual National Account Estimates of Central Bureau of Statistics released in April. Officials have attributed the slowing growth to weak performance in capital expenditure in the absence of timely announcement of a full-fledged budget for the current fiscal year. Over the last three years, average economic growth stood at 4 percent but this year’s estimate is even below that. The agriculture sector, which is mainstay of the economy contributing over one-third of the Gross Domestic Product (GDP), performed badly, posting 3.6 percent growth over the year against a target of 3.9 percent. The non-agriculture sector reported 4.2 percent growth in contrast to a target of 6.4 percent growth. With the results reported below the target in these sectors, people living below the poverty line also could not go below 23.8 percent against the target of 21 percent. The industrial sector, which used to contribute around 15 percent of GDP a decade back, has now been so weakened that its share dropped to below 6 percent. Consequently employment generation has increased only by an average of 2.9 percent over the period as against 3.6 percent growth envisaged by the current 12th Plan. Against the back drop of this unsatisfactory economic performance, the National Planning Commission (NPC), the apex policy making body of the government, has set an ‘ambitious’ target to see Nepal graduate from Least Developed Country to Developing Country status. The proposed concept paper of the upcoming three year plan, which is going to be finalized next week, has set a target of achieving 4.5 percent growth in the agriculture sector, up from this year’s 1.3 percent. Similarly, the plan envisaged increasing growth of the non-agriculture sector to 6.7 percent in next three years from the existing 5 percent. The 13th three-year plan has set a target of achieving 6 percent annual economic growth, though prospects for better performance of the agriculture and non-agriculture sector is bleak as is the business environment of the country. Achieving the targeted growth in agriculture is not easy for the government, given unreliable monsoon rains, frequent shortage of agriculture inputs such as fertilizers, limited areas of irrigation and slow progress in farm commercialization. The industrial sector, which was once a vibrant sector, has been passing through continued slowdown amid continued industrial strikes, perennial scarcity of power and shortage of skilled workers. The next plan has targeted growth of agriculture and fishery by 4.5 percent, industry and mining by 4.7 percent, electricity by 8.2 percent and construction by 5.5 percent. Similarly, the wholesale and retail business has been targeted for 5.6 percent growth, hotel and restaurants by 8.6 percent, and transport, storage and communication by 8.4 percent in the next three years. “In the absence of political government, no one is ready to take ownership of the plan to achieve the targets set by 13th plan. As the country is passing through a slowdown in the industrial sector, lack of massive commercialization in the farm sector and slowing exports, attaining such targets in different crucial sectors is very difficult,” said former Finance Minister Dr Ram Saran Mahat. Though the plan has set a target of bringing down the number of people living below the poverty line to 18 percent from the existing 23.8 percent, the economy is not going in this direction. Industrial slowdown has jacked up imports significantly while export growth is nominal, leading to a skyrocketing trade deficit. According to data compiled by the Trade and Export Promotion Center (TEPC), Nepal had a trade deficit of Rs 434 billion or Rs 1.44 billion per day during the first ten months of the current fiscal year. Out of a total of Rs 557 billion in foreign trade, exports covered only 11.2 percent or Rs 62.71 billion and trade deficit increased by 24.8 percent compared to the figure recorded during the same period last year. In a brief overview of the existing three-year plan ending mid-July this year, the draft concept paper has identified increasing the share of consumption in GDP, almost one-fourth of the population under poverty line, lack of commercialization in agriculture, scarcity of farm output, politicization in industrial sector, frequent strikes, deficit of energy, shortage of skilled workers, disruption in implementation of infrastructures, flourishing the culture of impunity, as the major challenges ahead to achieve the set targets. Sectors prioritized by the draft of concept paper of the next plan -- infrastructure, agriculture, energy, human resource development and effective use of public resources --not immune to these problems. “Given the poor economic performance of the economy, achieving the set targets for the coming plan is not easy. We have to learn from the past to deal with the challenges ahead,” Gopi Mainali, joint-secretary at NPC, said. The government has outlined strategies to achieve the targets set in the next plan. The strategies include achieving inclusive economic growth, increasing the contribution of private, public and cooperative sectors in the development process, development of physical infrastructure, enhancing access of people to quality social services, strengthening good governance in public and other sectors, strengthening economic and social empowerment of targeted groups and minimizing the adverse effects of climate changes. “Though the programs and strategies proposed in the draft are economically significant, achieving the targets in the absence of political government is challenging,” Mahat, who is also a senior leader of Nepali Congress, said. Creation of employment opportunities in the country has become further challenging as the government has failed to regain the confidence of investors on the back of prolonging political instability in the country. “Without commercialization of agriculture through adoption of mechanization we can’t achieve employment target as the agriculture sector hold high potentiality to generate job opportunities within the country. But the existing system of agriculture can’t support the targeted growth in agriculture,” says Dr Chandra Mani Adhikari, economic researcher. Adhikari also said Nepal’s agriculture sector which is highly dependent on monsoon and farmers’ own initiative rather than government effort, can’t be promoted without aggressive programs to support its commercialization. He is also not optimistic about achieving the set target in the industrial sector as manufacturing industries are running at around 54 percent capacity due to power shortage and scarcity of workers, among other reasons. “Even if the private sector increases investment and capital expenditure is significantly improved, overall economic growth will hover at around 5 percent over the next three years. But given the unfavorable climate for investment we are not optimistic for that,” added Adhikari.