Nepal heading toward economic recovery with 4.5% growth: WB

The World Bank (WB) has said that Nepal is heading toward economic recovery with the growth between 4 percent and 4.5 percent this year, up from last year’s 3.6 percent. The WB, however, made it clear that the country still needed to remove some bottlenecks in the development of energy, transportation and financial sectors to move to a higher growth trajectory. “Given the positive economic developments, the recovery of Nepal is likely. But Nepal has to focus on energy generation, transport development to support trade, and consolidate the financial sector,” Johannes Zutt, the country director of the WB for Nepal and Bangladesh, said at an interaction with the media on Thursday. Stating that politics has been eclipsing economic agenda in Nepal, Zutt underlined the need to promote private sector investment, infrastructure development and reforms in the financial sector to ensure robust growth. Highlighting ´Nepal Development Update´ -- a macro economic report on Nepal --released by the WB, Zutt stressed the need for Nepal to shift its focus to economic development while letting the political process go simultaneously. “It is time Nepal’s government increased its focus on increasing economic activities rather than sticking to political agenda,” Zutt said. Expressing concern over the depreciation of the Nepali currency against the US dollar, Zutt said that the depreciation was a concern but not a problem to panic over. The report also suggested that Nepal needn´t change the existing system of pegging the Nepali rupee to the Indian currency given the stronger dollar. “Such a major policy shift should be based on clear policy objectives and in-depth analysis of the likely economic outcome, including the long-term impact on Nepal´s trade competitiveness,” the report added. Presenting the report, Aureilien Kruse, the senior country economist at the WB’s Nepal office, said Nepal may achieve 4-4.5 percent economic growth this year, amid reports of good monsoon, steady remittance inflow and positive development in making progress in public spending. “If the elections are held on time and the result yield a broad consensus, macro-economic projections point to a gradual return to economic growth of 4 to 4.5 percent with inflation remaining in single digit,” the report said. The government has projected economic growth of 5.5 percent supported by the favorable monsoon and the timely announcement of the annual budget this year. Stating that it is challenging to contain inflation in an election year, Kruse said inflation mostly depends on the price situation in India, Nepal’s main trading partner. “Increasing fiscal expenditures and the upcoming elections will push inflation up in Nepal. However, the increased supply of food grains as a result of the favorable monsoon rains will support the government’s efforts to tame inflation. Prices of commodities in neighboring India will influence supplies and the price situation in Nepal,” said Kruse. Amid concerns over the weakening of the Nepali rupees against the US dollar, Kruse urged Nepal to try and benefit from the increased export receipts and remittance. “Though a stronger dollar against the rupee has pushed the import bills up and contributed to rising inflation, Nepal can benefit from exports and remittances,” he added. The report also said the recent depreciation of the Nepali rupees is not expected to hold back growth or to threaten macro-economic stability.