Government to struggle to meet growth target amidst coronavirus and poor expenditure
The tourism sector, which has been badly affected by the coronavirus outbreak, is unlikely to add much to the growth rate while spending and lending are both down. Post file photo
The Finance Ministry has made a downward revision in this fiscal year’s targets for government spending and revenue collection in its mid-term review released earlier this month, saying the government expenditure and revenue collection had been poor compared to the last fiscal year.
However, in the budget review released on February 10, Finance Minister Yubaraj Khatiwada made no revision in the growth target of 8.5 percent. Most international agencies, including the World Bank, Asian Development Bank and International Monetary Fund, have projected Nepal's growth rate at just over 6 percent for the current fiscal year.
At the unveiling of the report, Khatiwada said that most economic indicators are improving and except for a few crops, the overall agriculture sector has shown growth and that industrial production has expanded. Nepal’s exports grew 26 percent in the first half of the year and the trade deficit has been narrowing, he said.
“There has been increased investment in the hospitality, hydropower, airport, road, school and private housing sectors. All this indicates that Nepal will achieve high economic growth this fiscal year as well,” said Khatiwada.
Economists, however, disagree, saying there is no indicator to suggest that Nepal will meet its ambitious target.
“It is more or less certain that the targeted growth will not be achieved. My assessment is that growth will be around 7 percent,” said economist Govinda Nepal, a former member of the National Planning Commission.
Nepal, however, commended Khatiwada for not making a downward revision in the growth target.
“It is the job of the government to attempt to meet the target by reorienting resources in areas that can help boost the economy,” said Nepal.
Others are not so optimistic.
The coronavirus, combined with the government and the private sector’s failure to invest, will ensure that the 8.5 percent growth rate will remain a daydream, said Bidyadhar Mallik, a former finance secretary and minister.
“It is unsuitable to claim that the growth target will be met after the finance minister himself has reduced the expenditure target,” Mallik told the Post.
The tourism sector, which was expected to provide a boost to the economy, is likely to plunge into crisis as a result of the coronavirus epidemic which is wreaking havoc across the world, but especially in China. Nepal had aimed to attract 350,000 Chinese tourists for Visit Nepal 2020.
“Although the contribution of tourism to the Gross Domestic Product is a little more than 2 percent, it was a promising sector that could’ve helped boost the economy,” said Nepal.
While Nepal is unlikely to meet the number of Chinese tourists, the impact of the epidemic is already visible in the number of development projects contracted to Chinese firms as Chinese workers have not been able to return to Nepal after going home for the Chinese New Year.
Chinese contractors are involved in a number of hydropower, transmission lines, airport and road and bridge projects. The deadline for the Gautam Buddha International Airport in Bhairahawa has already been postponed until mid-May from March 31 due to the coronavirus outbreak.
“Vital components like runway lighting, baggage handling and other equipment that will be fitted in the airport terminal are unlikely to be delivered on time,” Rajan Pokhrel, director general of the Civil Aviation Authority of Nepal, told the Post last week.
However, officials at the Energy Ministry and the Physical Infrastructure Ministry said that they have no information on any likely delays to projects due to the unavailability of Chinese contractors.
“We have not received any report about problems in projects awarded to Chinese contractors after the coronavirus outbreak,” said Babu Raj Adhikari, information officer at the Ministry of Energy.
Saroj Kumar Pradhan, spokesperson for the Ministry of Physical Infrastructure and Transport, echoed Adhikari.
Besides the impact of this epidemic, decline in production of paddy could also affect economic growth. The agriculture sector’s contribution to the economy stood at 26.5 percent as per last fiscal year’s figures and paddy continues to occupy the largest share among all the crops.
According to the Ministry of Agriculture and Livestock Development, paddy production declined by one percent to 5.55 million tonnes this fiscal year, from 5.61 million tonnes in the same period a year ago.
The government’s spending has also slowed, which does not bode well for growth.
The federal government’s capital expenditure stood at 15.4 percent during the first half of the current fiscal year, compared to 17.7 percent during the same period in 2018-19.
Average capital expenditure of provincial governments stood at just 12.9 percent, with the Karnali and Province 2 governments having spent just 3.8 percent of the allocated budget for the year, according to the mid-term review.
Out of the Rs102 billion allocated for national pride projects, only 19 percent, or Rs20 billion, has been spent so far, according to the Finance Ministry.
“Government expenditure works as a catalyst to boost private sector spending,” said Mallik. “But, the expenditure has remained poor so far, and the impact will be seen.”
Credit to the private sector from banks and financial institutions grew at 8.6 percent in the first six months of this fiscal year, compared to 12.7 percent in the corresponding period last year, according to Nepal Rastra Bank.
Growth in lending to almost all sectors has gone down during the first half of the year, compared to the same period last fiscal, according to the central bank.
Although the government has claimed to have improved the business climate, the private sector continues to complain that the government has created an environment of fear through anti-money laundering measures, taxation and customs valuations.
“Investors and bankers are not investing enough,” said Jagdish Chandra Pokharel, former vice-chairman of the National Planning Commission. “But, the government claims otherwise. So, who is investing? This has raised concerns regarding whether there are investments from the cronies of ruling political leaders.”
Pokharel said that if investors don’t feel secure, they won’t invest. The private sector has also been complaining about difficulty in getting their works done without paying bribes.
But Prime Minister KP Sharma Oli last week, on the occasion of the completion of his two-year tenure, said that the investment climate had improved, based on the Doing Business Index and the Corruption Perception Index. Nepal jumped to an all-time high of 94 out of 190 economies in the World Bank’s ease of doing business rankings.
Nepal also improved in Transparency International’s 2019 Corruption Perceptions Index. As per the report, Nepal’s ranking stood at 113th, 11 spots higher compared to 2018, with a score of 34.
But, a number of corruption scandals, including the Cabinet decision to award lucrative lands to Yeti Holdings, the Baluwatar land scandal, alleged bribes given to Nepali officials and agents for the procurement of narrow-body aircraft by Nepal Airlines Corporation and the latest corruption scandal involving former minister Gokul Baskota, have shed light on the state of corruption in the state machinery.
“Corruption scandals discourage investors,” said Pokharel.
Frequently asked questions about the coronavirus outbreak
UPDATED as of September 22, 2020
What is Covid-19? Covid-19, short for coronavirus disease, is an illness caused by the coronavirus SARS-CoV-2, short for severe acute respiratory syndrome coronavirus 2. Common symptoms of the disease include fever, dry cough, fatigue, shortness of breath and breathing difficulties. In severe cases, the infection can cause pneumonia, severe acute respiratory syndrome, kidney failure and even death.
How contagious is Covid-19? Covid-19 can spread easily from person to person, especially in enclosed spaces. The virus can travel through the air in respiratory droplets produced when a sick person breathes, talks, coughs or sneezes. As the virus can also survive on plastic and steel surfaces for up to 72 hours and on cardboard for up to 24 hours, any contact with such surfaces can also spread the virus. Symptoms take between two to 14 days to appear, during which time the carrier is believed to be contagious.
Where did the virus come from? The virus was first identified in Wuhan, China in late December. The coronavirus is a large family of viruses that is responsible for everything from the common cold to Middle East Respiratory Syndrome (MERS) and Severe Acute Respiratory Syndrome (SARS). After an initial outbreak in Wuhan that spread across Hubei province, eventually infecting over 80,000 and killing more than 3,000, new infection rates in mainland China have dropped. However, the disease has since spread across the world at an alarming rate.
What is the current status of Covid-19?
The World Health Organisation has called the ongoing outbreak a “pandemic” and urged countries across the world to take precautionary measures. Covid-19 has spread to 213 countries and territoriesaround the world and infected more than 31,405,983 people with 967,505 deaths and 22,990,260 recoveries. In South Asia, India has reported the highest number of infections at 5,557,573 with 88,943 deaths. While Pakistan has reported 306,304 confirmed cases with 6,420 deaths. Nepal has so far reported 65,276 cases with 427 deaths.
How dangerous is the disease?
The mortality rate for Covid-19 is estimated to be 3.6 percent, but new studies have put the rate slightly higher at 5.7 percent. Although Covid-19 is not too dangerous to young healthy people, older individuals and those with immune-compromised systems are at greater risk of death. People with chronic medical conditions like heart disease, diabetes and lung disease, or those who’ve recently undergone serious medical procedures, are also at risk.
How do I keep myself safe? The WHO advises that the most important thing you can do is wash your hands frequently with soap and water for at least 20 seconds or use hand sanitizers with at least 60 percent alcohol content. Avoid touching your eyes, nose and mouth with unclean hands. Clean and disinfect frequently used surfaces like your computers and phones. Avoid large crowds of people. Seek medical attention if symptoms persist for longer than a few days.
Is it time to panic?
No. The government has imposed a lockdown to limit the spread of the virus. There is no need to begin stockpiling food, cooking gas or hand sanitizers. However, it is always prudent to take sensible precautions like the ones identified above.
Prithvi Man Shrestha was a political reporter for The Kathmandu Post, covering the governance-related issues including corruption and irregularities in the government machinery. Before joining The Kathmandu Post in 2009, he worked at nepalnews.com and Rising Nepal primarily covering the issues of political and economic affairs for three years.
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