CBS explores ways to adjust quake damages in nat’l accountEvery year, the Central Bureau of Statistics (CBS) publishes the National Account Estimate with the GDP growth estimate for the year by mid-May.
But after the April 25 earthquake, the CBS is in a fix on how to adjust the massive damages caused by the quake in the national account. The National Account Estimate for this fiscal was in the last stage when the quake hit the country.
Generally, the CBS’ national account estimate is based on economic activities until the third quarter of the fiscal year. Now, CBS is undecided whether to produce a new report calculating the losses caused by the quake or come up with the usual report based on the third quarter.
“We used to give projection for the whole year based on the developments of the third quarter. We are now undecided whether to produce another report accommodating the damages caused by the quake,” said Bikas Bista, director general at CBS.
Like the CBS, the government is also yet to come up with final assessment of the economic impact of the 7.9 earthquake. However, the government has admitted the GDP growth target for this fiscal will be hard to achieve, with Finance Minister Ram Sharan Mahat stating last Wednesday the projected economic growth would be impossible to meet. “The earthquake has affected all sectors, including tourism, industry and agriculture,” said Mahat.
Economists said the quake has badly hit the components of services sectors like tourism, banking and real estate and its impact would be seen on the economy. Although the services sector’s direct and indirect contribution was only about 9 percent to gross domestic product (GDP) in fiscal year 2013-14, it is one of the fastest-growing sectors and has significant backward and forward linkages in terms of employment and production.
Post-earthquake, there has been a massive exodus of tourists from the country and those willing to come to Nepal have cancelled their hotel bookings.
Lending activities of the banking sector has suffered due the closure of financial institutions for some time, and real estate developers will struggle to regain people’s faith. “Services sector components like real estate, banking and tourism are likely to witness negative or slowed growth,” said Min Bahadur Shrestha, chief of research department at the Nepal Rastra Bank (NRB). “As spending will rise in the areas of health, education and welfare activities, these sectors will see growth.”
The only assessment done so far of the economic losses is by the Asian Development Bank. In its initial analysis of the impact of the quake on the economy, ADB has estimated the growth rate will decline to 4.2 percent from its estimate of 4.6 percent made in March. “If the supply-side disruptions intensify in the coming weeks, the growth forecast may be further downgraded to somewhere between 3 percent and 3.5 percent,” states ADB.
Economists said though the quake has damaged the economy massively, its impact on the GDP growth would be minimal for this fiscal year because most of the productions have already taken place in the first nine-month of the current fiscal year before the quake hit the country.
Economist Shankar Sharma calculates the quake might have damaged property worth 30-35 percent of the gross domestic product (GDP). The country’s GDP is around worth Rs 2 trillion.
He, however, argued much has been already produced and lower production after quake won’t have big impact. “I expect the downturn in GDP growth by one percentage point this year, particularly due to its impact on the service sector, slowdown in the government’s construction activities and a little bit impact on the manufacturing sector,” said Sharma, who is former vice-chairman of National Planning Commission (NPC).
According to the economists, the agriculture sector won’t be hurt much as most of key agriculture products have already been harvested and the industrial sector also may not suffer significantly as a few days of closure won’t make a huge difference as the sector’s contribution to the economy is very small at just around 6 percent.
Former Finance Secretary Rameshore Khanal said the quake won’t bring down the growth this year. “My calculation is it will bring down the growth rate by 0.2 to 0.3 percentage points,” he said.
Khanal does not see much impact on growth because most of the key agriculture products such as paddy, wheat and maize have already been harvested. “It can affect vegetable production and livestock whose impact won’t be big enough,” he said.
However, they say as most of the people from quake-affected districts outside the Kathmandu Valley are dependent on agriculture for their livelihood, its impact would be seen on their livelihood opportunities.
The economists, however, said the growth would revive from the next fiscal year as rebuilding process moves ahead with growing demand for construction materials and labour.
The government has announced the Rs 200 billion reconstruction fund and announced reconstructing all the damaged government and private buildings as well as historical monuments within the next five years.
However, Khanal said the prospect of growth in the upcoming years would depend on how swiftly the reconstruction process moves ahead. “There is a need for a central model agency with quick decision making power to take ahead the reconstruction activities,” he said.