Continued lockdown may trigger unpredictable economic consequences, experts sayThe Central Bureau of Statistics has said Nepal's economy would likely grow at a rate of 2.27 percent this fiscal year.
Nepal's economy is headed for a catastrophe with no end in sight to the monthslong paralysis as the virus lockdown keeps getting extended, economists said.
They fear the Covid-19 closures could trigger unpredictable consequences even as forecasters struggle to figure out where the country's economy stands now.
One thing experts are certain about is that there will be a sharp economic deceleration this fiscal year ending mid-July, and the plunge in output will carry over to the next year. Some economists project an economic growth rate of 1 percent for this fiscal year, but say that it will not go into negative territory.
The Central Bureau of Statistics said recently that Nepal's economy would likely grow at a rate of 2.27 percent this fiscal year, way below the government's targeted 8.5 percent.
The optimism is based on the assumption that some sectors like manufacturing will stabilise after mid-May.
In a recent interview with the Post, Ishwori Prasad Bhandari, director of the National Economic Statistics Division at the Central Bureau of Statistics said, “We think the growth slowdown will bottom out by mid-July, and the economy could see a gradual recovery in the next fiscal year, driven by revivals in consumption when hotels and restaurants reopen.”
Bhandari warned of graver consequences if the lockdown was extended beyond mid-June and international travel restrictions were not lifted globally.
Contrary to expectations, the lockdown has not brought the situation under control, but cases of infections have been growing by leaps and bounds.
As of Wednesday afternoon, the number of cases reached 427. In the last two weeks, infections increased fourfold, with the number of cases jumping by 370 in May alone, according to the Ministry of Health and Population.
On Sunday, the government decided to extend the lockdown that has been in force since March 24 till June 2, continuing to suspend ground and air travel, shutting down most businesses and industries except medical goods, food items and construction.
Lockdown restrictions have forced factories to operate at below capacity and disrupted the supply chain. Construction work at big projects has slowed down, and services related to public transportation remain closed.
The central bank, which had projected a loss of Rs168 billion for the economy based on the growth rate forecast by the Central Bureau of Statistics, said the figure could rise as the situation is worsening day by day.
According to Nepal Rastra Bank, the economic growth rate for the current fiscal year would be 7 percent in a normal situation.
“The gap between the pre-Covid projection and the growth estimate recently released by the bureau is assumed to translate into a loss of the nominal gross domestic product by approximately Rs168 billion,” the central bank said in its macroeconomic situation report.
“As the situation is worsening and will potentially affect the economy harder compared to what the bureau has projected, the losses will also be bigger,” said Gunakar Bhatta, chief of the research division at the central bank.
According to him, the central bank’s projection is that the hotel and restaurant sector alone would see a loss of Rs14 billion by the end of the current fiscal year if growth decelerated to 2.27 percent.
In early May, the International Monetary Fund said that Nepal’s economy would grow by just 1 percent this fiscal year. Early last month, the World Bank had projected that Nepal’s economy would grow between 1.5 percent to 2.8 percent this fiscal year.
Economist Govinda Nepal said he did not see the economy suffering negative growth, but it could grow between 1 percent to 1.5 percent.
“As financial intermediary services are operating shorthanded, some food producing industries and shops are running, and agriculture activities are also continuing, this will potentially prevent the country from seeing negative growth this fiscal year,” he said. “But the continued lockdown will take a heavy toll on the economy.
Earlier this month, the government had relaxed lockdown restrictions for 44 sectors in a bid to minimise economic damage. They include production, transport and sales of agriculture and livestock products; medical goods and services; cargo transport services; development activities; construction materials, food items and export products; banking services, hotels and restaurants and highway construction.
But officials dealing with the construction projects said it was difficult to bring workers and raw materials. “We are having a hard time transporting workers to road and bridge construction sites because the local administration is not providing enough vehicle passes,” said Shivahari Sapkota, spokesperson for the Department of Road.
“In order to keep a construction project moving, we need travel passes not only for personnel directly involved in construction, but also for those who manufacture and deliver construction materials.”
Economist Nepal said the failure to resume operations despite relaxed lockdown restrictions would hit the economy.