Saturday, April 13, 2013

Economic performance remains unimpressive

-------------Economic Review- Year 2069-------------
KATHMANDU, April 14: Nepal´s flagging economy suffered another setback in the Nepali Year 2069 ended April 13 plagued by prolonging power deficit, frequent labor strikes, widening trade deficit, ebbing investors confidence and low capital spending in the absence of full budget.

The previous government led by Baburam Bhattarai could not announce full budget due to political wrangling although ordinances on budget were introduced twice to keep the economy moving.

The newly formed government led by Khilaraj Regmi last week announced a full budget worth Rs 404.82 billion making additional provisions of Rs 52.89 billion on previous allocation of around Rs 351 billion.

Due to lack of consensus for full budget among political parties, the Bhattarai-led government was compelled to set capital expenditure target based on actual spending of last fiscal year without allocating funds for new projects. Even ongoing projects did not receive adequate funds during the year, which affected their day-to-day works.
On the back of low capital spending, huge amount of money remained idle in state coffers affecting money supply.

This was one of the major reasons that forced the government to revise down the economic growth to 3.6 percent for the current fiscal year from 4.1 percent projected in the mid-term review.

During the year, farm sector also suffered a setback, with production of paddy, maize, and millet dropping by 11.3 percent, 8.3 percent and 3 percent, affecting the food security situation in the country. These reasons also compelled the government to come up with lower economic growth projection for this fiscal year. As an apparent effects of decline in cereal production, price of food commodities  went beyond the government estimation. Inflation rose to around 10.5 percent from the 7.5 percent originally estimated by the government. In a bid to ensure smooth supplies of petroleum products in the market, the government introduce the Petroleum and Gas Transaction Order 2013 which paved the way for private sector to import, process and distribute the petroleum products ending more than four decades long monopoly of state-owned Nepal Oil Corporation (NOC). However, the government backtracked from its plan to open up the petroleum sector to private sector after fierce protest from petroleum entrepreneurs who had been enjoying benefit from the mismanagement of NOC.

Also, in terms of trade performance, Nepal suffered highest ever trade deficit of Rs 340.65 billion in the first eight months of the current fiscal year till mid-March.

During the period, exports contributed to nominal 11.4 percent of the total trade volume of Rs 441.09 billion.

Increasing imports of petroleum, iron and steel, machinery parts, transport vehicles, gold and silver, cereal and some luxurious products contributed to the ballooning trade deficit at a time when the country has been suffering from weakening supply capacity amid persisting power shortage, bandas, labor unrest and political instability.

In a bid to boost trade between Nepal and China, construction works for establishment of a dry port in Larcha of Sindhupalchowk began this year, with the aim of completing the project within next two years.

However, Nepal failed to renew transit treaty with India with additional provisions that were crucial to promote Nepal´s trade with the southern neighbor and overseas countries. Nepal and India renewed the treaty in existing form after Nepal´s foreign ministry expressed reservation over one-time additional lock system on Nepal bound cargos proposed by Indian officials. The additional lock provision was among the different provisions included in the proposal of the new transit treaty with the southern neighbor.

Though Nepal has been celebrating the Investment Year 2013-14 to encourage foreign and domestic investors to put money in major potential sectors such as hydropower, infrastructure, tourism, agriculture and manufacturing, the investment environment in the country was not conducive during the year.

Growing industrial insecurity, amid frequent attacks on businessmen and industrial establishments by trade union workers, has generated fear among potential and existing investors.

However, the government secured investment commitments worth US$440 million for implementation of proposed 140-MW Tanahun hydropower project from Japan International Cooperation Agency, the Asian Development Bank, Abu Dhabi Fund and European Bank. Completion of track opening works by Nepal Army for 76-km Kathmandu-Tarai Fast Track, the government´s decision to raise licenses fees to a range of Rs 200,000 to Rs 6 million for hydropower generation, were some of the major steps taken by the government during the year.

The performance of the stock market also remained satisfactory during the year with the Nepal Stock Exchange (Nepse) index surging 203.47 points over the year to end at 523.41 points on April 12, the last trading day of 2069, thanks to progress in peace process following integration of former Maoist combatants in the Nepal Army.

In the foreign employment sector, the year was possibly one of the best for Nepali migrants abroad. The Nepal government decision to jack up minimum salary of Nepali workers in Saudi Arabia and the United Arab Emirates (UAE), to enhance their savings amid increasing cost of living in those key destinations that house around 700,000 Nepalis migrants, was well received.

Malaysia, the most popular destination for Nepali job-seekers, also announced its decision to raise minimum salary to 900 ringgit from 546 ringgit providing relief to overseas migrants, including Nepalis. However, the salary hike in Malaysia will be implemented in 2014. Yet reports of strikes staged by Nepalis in different areas of Malaysia such as Maur, Johor Baru, Perak of Kelang Neru and Tebrau were also reported during the year.

Increasing incidents of violent protests by Nepali workers in labor destinations have become a matter of concern for the government though such agitations are against employers, who exploit Nepali workers by infringing on terms and conditions of work contracts.

Published on 2013-04-14 03:00:04

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