Economic growth target unchanged for the next three years despite the pandemicTarget of 6.5 percent for 2021-22 may be met if situation normalises given the negative growth last fiscal year, but double digit growth after that is impossible, experts say.
Prithvi Man Shrestha
When the 15th five-year plan was announced in 2019, the growth target for the fiscal year 2021-22 was 9.9 percent, that for 2022-23 was 9.6 percent and it was 10.3 percent for 2023-24.
Although the National Planning Commission, in line with the budget target for the fiscal year 2021-22, revised the economic growth target to 6.5 percent amid the ongoing the pandemic, it has kept the target set by the periodic 15th five-year plan, that lasts from 2019-20 to 2023-24, unchanged for the following two fiscal years.
The Medium Term Expenditure Framework (2021-22 to 2023-24), released last week announced the economic growth target for the next fiscal year was kept at 6.5 percent. The Medium Term Expenditure Framework is a document that the National Planning Commission prepares every year projecting the required expenditure of the government for the next three years to meet the growth target.
According to Krishna Prasad Oli, a member of the commission, the target for the last two years of the 15th Five-year Plan is achievable despite the economy being in doldrums since the start of the pandemic.
“Obviously, we have set an optimistic target and that is achievable if big disasters won't occur again,” he said. “Energy sector is also promising and many government and private sector developed projects are completing which will boost the growth.”
The targeted growth would be achievable in normal times, he added.
But with no end of the pandemic in sight, whether it is achievable is open to question.
“Growth is uncertain at the time of pandemic,” said Govinda Nepal, a former member of the commission.
With the country gripped by the second wave of the pandemic, much of the country has been under prohibitory orders and they were eased in Kathmandu Valley and businesses allowed to operate from Tuesday after nearly two months.
Experts have meanwhile warned of a third wave within a few months.
From a high of 9,317 on May 11, the number of cases has been coming down gradually and on Tuesday the Ministry of Health and Population reported 3,703 cases although the figure stood at 1,584 on Monday.
The Medium Term Expenditure Framework has also kept unchanged the most other targets too such as per capita national income, people living under the poverty line and people living under multidimensional poverty.
In late April, the Central Bureau of Statistics projected that Nepal’s economy would grow by 4 percent in the current fiscal year 2020-21 considering that the lockdown would be lifted in early May but the prohibitory orders are still in place. Although the final figure for the fiscal year is not expected until data are reviewed based on complete data for the fiscal year, while presenting the budget for 2021-22, the government admitted that meeting the projected growth of 4 percent would be a challenge.
The country suffered a negative growth of 2.12 percent in the fiscal year 2019-20, the first time in nearly four decades there was a negative growth. The country’s economy had suffered a contraction in the fiscal year 1982-83 when the economy saw a negative growth of 2.97 percent. The Central Bureau of Statistics had then attributed the negative growth to a drought in 1980-81 that led to a severe food crisis.
But it is precisely because of the negative growth that economists say that the target is achievable for the fiscal year 2021-22, despite the recent economic woes of the country.
“The growth target set for the next fiscal year is not impossible to achieve due to lower base effect,” said Min Bahadur Shrestha, former vice-chairperson of the commission. “Even a meagre growth in the current fiscal year would be helpful to achieve next fiscal year’s growth target.”
But for that the situation has to normalise.
“If the situation normalises, achieving 6.5 percent growth next year is not difficult as just four percent growth is projected this fiscal year after a negative growth last fiscal year,” said Nepal
However, targeting nearly double digit and double digit for the last two years of the current 15th Five-Year Plan would be hard to achieve, according to him.
“The target set for another two years is virtually impossible because we won’t be spending resources for asset creation much in the next fiscal year for there to be an impact in the two years after that,” Shrestha said. “Much of the resources will be spent on economic recovery from the pandemic.”
Infrastructure development is a big priority of the government to achieve a high economic growth in the 15th Plan but the budget for 2020-21 and 2021-22 has focussed on the health sector and economic recovery.
“Investment in the infrastructure sector helps to sustain economic growth,” said Shrestha. “But with the pandemic, the country has rightly focussed on health and economic recovery.”
However, when the 15th Five-Year Plan was announced in 2019, the government had set a high growth target as the country had achieved higher economic growth than targeted during the 14th Five-Year Plan.
Even though the target of the 14th Plan was 7.2 percent, the average growth rate in the three years of the 14th Plan (the 14th Plan was three years rather than the usual five) was 7.45 percent.
According to Jagadish Chandra Pokharel, another former vice-chairperson of the commission, with the 7-8 percent growth in normal times, proper implementation of the plan and efficiency in implementation of development projects are imperative to achieve double digit growth.
“Even in the normal situation, achieving double digit growth is a herculean task,” he said. “In the post Covid-19 situation, it will be even harder.”
Pokharel said that the government should have set realistic targets after the review of the 15th Plan and should stop making existing growth targets as the basis of various government plans in future.
But the government has had a tendency of keeping unrealistic targets for long.
“The main reason behind keeping a high growth target is to take credit for high economic growth if it happens,” said Nepal, the former member of the commission. “Another reason is that the government aims to show a positive outlook to the general public and investors to generate hope about economic performance. As a result of such an outlook potential investors would also be interested to invest.”
On the other hand, the economic growth targets have hardly been met in most of the years.
“But nobody is held accountable for lower than expected growth and such a trend invites questions about the credibility of the government,” said Nepal.