Flood losses not as bad as initial estimates

September 24, 2017

Sep 24, 2017-The Nepal Rastra Bank, the central bank, has said losses triggered by floods and landslides in the second week of August will not hit the country’s economy as hard as initially feared.

The country suffered record floods following torrential rain that continued from August 11-14. The floods killed over 150 people and left 31 districts awash in water. The natural disaster completely destroyed over 43,000 houses and caused partial damage to thousands of other houses.

The Ministry of Agricultural Development had initially estimated farm sector losses triggered by floods to stand at Rs8.1 billion, which was later revised downwards to Rs5.8 billion. 

Statistics show that 140,464 hectares of standing crops of paddy, maize, pulses, banana and spices were affected by the flood, while 37,757 hectares of standing crops suffered severe damage. Likewise, fishes on 2,582 hectares were swept away.

The paddy crop suffered the most with damage amounting to Rs1.72 billion, followed by fisheries (Rs1.54 billion) and vegetables (Rs1.28 billion). The floods also killed livestock worth millions of rupees. “The torrential rains did cause losses of stock and hit agricultural infrastructure in most of the districts in the Tarai,” says NRB’s latest Macroeconomic Report. “However, timely onset of monsoon, normal rainfall in subsequent period, improved supply of agricultural inputs and steps taken by the government are likely to offset the output loss initially assumed.”

This statement comes at a time when the World Bank has revised Nepal’s growth forecast downwards to around 4.5 percent (from around 5 percent) over the next two fiscal years, following devastations caused by floods, which are expected to affect agricultural output. 

Since the floods, the Ministry of Agricultural Development has decided to introduce a relief package of Rs1.25 billion for farmers. The aid package, which will be rolled out by the District Disaster Relief Committees before Dashain, will be in the form of immediate cash grants and subsidies on agricultural inputs. 

This initiative is also expected to offset losses suffered by the agricultural sector, which makes a contribution of around 30 percent to the country’s gross domestic product.

Also, industrial sector, which makes a contribution of around 15 percent to the economy, is expected to perform better this fiscal year due to improved energy supply, smooth supply situation and the rise in foreign direct investment, says the NRB report, adding, “The successful completion of local elections has also improved the industrial climate.”

Among others, hospitality sector is also expected to perform better in the current fiscal year, as bed occupancy rate of tourist hotels jumped to 75 percent in the one-month period between mid-July and mid-August, which is considered as off-tourist season, according to the NRB report.

“Also, the government has made fiscal transfer of Rs225 billion to local bodies,” adds the report. “Fiscal transfers are expected to boost capital spending in the current fiscal year, spurring economic activities across the country.”

Yet the government has not been able to meet its revenue collection target, merchandise exports have fallen, trade deficit has widened and both current account and overall balance of payments are in deficit in the one-month period between mid-July and mid-August. “These developments, in case they continue, will pose policy challenges for macroeconomic management in the future,” says the report.