News

Nepal’s economy grows by 6.5pc in FY 2018/19: IMF

February 19, 2019

The Himalayan Times, February 18, 2019

KATHMANDU: Nepal’s Gross domestic product (GDP) is estimated to have expanded by 6.3 per cent in Fiscal Year (FY) 2017/18 (mid-July 2017 to mid-July 2018), and headline inflation has averaged 4.2 per cent, held down by subdued food-price inflation.

The press release issued by International Monetary Fund (IMF) states that Nepal’s economy is enjoying a solid expansion, supported by ongoing reconstruction activity following the 2015 earthquakes and increased growth in manufacturing and tourism-related sectors.

The Executive Board of the IMF on February 8, concluded the Article IV consultation with Nepa. Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

Nepal: Selected Economic Indicators, 2015/16–2019/20
  2015/16 2016/17 2017/18 2018/19
  Est. Projections
Output and prices (annual percent change)  
Real GDP 0.6 7.9 6.3 6.5 6.3
Headline CPI (period average) 9.9 4.5 4.2 4.9 6.5
Headline CPI (end of period) 10.4 2.7 4.6 5.1 6.5
Fiscal Indicators (in per cent of GDP)          
Total revenue and grants 23.3 24.4 25.5 29.2 29.4
of which: tax revenue 18.7 21 21.9 25.2 25.4
Expenditure 21.9 27.5 32 34.2 34.4
Expenses 16.5 19.6 23.1 26.8 27
Net acquisition of nonfinancial assets 5.5 7.9 8.9 7.4 7.4
Operating balance 6.8 4.8 2.4 2.4 2.4
Net lending/borrowing 1.4 -3.1 -6.5 -5 -5
Statistical discrepancy -0.9 -1.3 -3.1 0 0
Net financial transactions -2.3 1.8 3.5 5 5
Net acquisition of financial assets 4.7 1.4 2.6 -0.1 -0.1
Net incurrence of liabilities 2.4 3.2 6 4.9 4.9
Foreign 0.7 1.3 2.5 3.7 3.9
Domestic 1.7 1.9 3.6 1.2 1
Money and credit (annual per cent change)          
Domestic credit 17.4 20.2 26.1 21.3 18.1
Private sector credit 23.2 18 22.3 19.8 16.9
Velocity 1 1 1 0.9 1
Saving and Investment (in per cent of nominal GDP)          
Gross investment 33.9 45.7 51.8 55 57
Gross fixed investment 28.7 31.8 34.1 36.2 37.5
Private 23.3 23.9 25.2 28.8 30.1
Central government 5.5 7.9 8.9 7.4 7.4
Change in stock 5.2 13.9 17.7 18.7 19.4
Gross national saving 40.2 45.4 43.6 45.4 44.5
Private 33.2 41.8 42.4 44.1 43.3
Central government 7 3.6 1.2 1.2 1.2
Balance of Payments          
Current account (in millions of U.S. dollars) 1,339 -93 -2,350 -2,778 -4,129
In per cent of GDP 6.3 -0.4 -8.2 -9.6 -12.5
Trade balance (in millions of U.S. dollars) -6,389 -8,446 -10,849 -12,899 -15,061
In per cent of GDP -30.2 -33.9 -37.7 -44.6 -45.6
Exports value growth (y/y per cent change) -28.8 9.9 15.5 5.3 8
Imports value growth (y/y per cent change) -7.4 30 27.4 17.9 16.2
Workers’ remittances (in millions of U.S. dollars) 6,253 6,556 7,224 8,495 9,084
In per cent of GDP 29.5 26.4 25.1 29.4 27.5
Gross official reserves (in millions of U.S. dollars) 8,574 9,264 9,304 8,558 6,788
Gross official reserves (in millions of U.S. dollars) 8,574 9,264 9,304 8,558 6,788
In months of prospective GNFS imports 9.6 8.3 7.2 5.7 4.4
Memorandum items          
Public debt (in per cent of GDP) 27.9 26.4 30.4 33.1 34.1
GDP at market prices (in billions of U.S. dollars) 21.2 24.9 28.8 28.9 33
Exchange rate (NPR/US$; period average) 106.4 106.2 104.4
Real effective exchange rate (average, y/y per cent change) 6 3.3 -0.1
Sources: Nepali authorities; and IMF staff estimates and projections.

Likewise, the government expenditure has increased by 32.4 per cent (year-on-year) in FY 2017/18, propelled by Nepal’s transition to fiscal federalism and ongoing reconstruction spending. As in previous years, spending was concentrated in the last quarter of the fiscal year. Revenue growth was also substantial (18.9 per cent). Nevertheless, the fiscal deficit increased to 6.5 per cent of GDP, from 3.1 per cent of GDP in FY 2016/17.

Private sector credit has been expanding very rapidly in recent years, posting 24 per cent (y/y) growth in December 2018, following average growth rates above 20 per cent since FY 2015/16.

The current account has moved sharply into deficit position (8.2 per cent of GDP in FY 2017/18), following a modest deficit of 0.4 per cent in FY 2016/17. Imports grew by 27.4 per cent (y/y), following a 30 per cent expansion in FY 2016/17. Exports have also expanded, by 15.5 per cent, but this growth has applied to a low base (exports comprised 3.1 per cent of GDP in FY 2017/18). Nepal’s substantial trade deficit is partly financed by buoyant remittance inflows, which grew by 10.2 per cent (y/y) in FY 2017/18 and were equivalent to 25.1 per cent of Nepal’s GDP. As of December 2018, gross official foreign exchange reserves held by the Nepal Rastra Bank stood at US$ 8.3 billion, having declined by approximately US $1.2 billion from the record set in January 2018.

The statement has further stated that the near-term outlook for growth is favourable but macroeconomic and financial vulnerabilities continue to build. Growth is expected to reach 6.5 per cent in FY 2018/19, supported by ongoing reconstruction, investment in hydro-power projects, and strong tourism-related activity. However, fiscal and credit policies are very expansionary leading to rising non-food inflation, a widening current account deficit, falling foreign exchange reserves, and a buildup of financial sector vulnerabilities. Risks are tilted to the downside, related to the financial sector and a possible slowdown in remittances.

Source: https://thehimalayantimes.com/business/nepals-economy-grows-by-6-5-per-centc-in-fy-2018-19-international-monetary-fund/