2017年-世界发展银行全球_Nepal_Development_Update_September_2017___Fiscal_Architecture_for_Federal_Nepal_38页_2mb

Nepal Development Update: Fiscal Architecture for Federal Nepal

Core Content Summary

This document presents an update on Nepal's economic developments and fiscal architecture in the context of the country's transition to a federal system. It outlines the recent economic performance, future outlook, and key challenges related to fiscal management, with a special focus on the implications of federalism on government finances and service delivery.

Recent Economic Developments

1. Global and Regional Growth

• Global growth is on the rise, with South Asia expected to grow at 6.8% in 2017 and 7.2% on average in 2018–19.
• Strong domestic demand, increased exports, and robust foreign direct investment support this growth.
• However, policy uncertainty and upcoming elections pose domestic risks.

2. Economic Impact of Natural Disasters

• Nepal's economy rebounded strongly in FY2017, growing at 7.5% (y/y).
• A severe flood in mid-August 2017, the third major disaster in three years, caused significant damage, particularly in the southern plains.
• Over 1.7 million people were affected, including 460,000 displaced and 65,000 homes destroyed.
• Agriculture, manufacturing, and tourism were heavily impacted, with estimates of 64,000 hectares of crops destroyed and 80% of land in the southern Terai region inundated.

3. Inflation Trends

• Inflation in Nepal moderated sharply, reaching a 13-year low of 2.7% in July 2017.
• Food inflation declined significantly, contributing to a drop in overall inflation.
• Nonfood inflation also eased, from 4.5 percentage points in August 2016 to 3.1 percentage points in July 2017.
• Nepal's inflation differential with India narrowed, from -1.7 percentage points in March 2017 to 0.3 percentage points in July 2017.

4. Government Revenue and Expenditure

• Revenue collection in FY2017 reached a record high of 24.8% of GDP, surpassing the annual target.
• Tax revenue, particularly VAT, grew by 31.3%, reaching NPR 160 billion.
• Government expenditure increased significantly, reaching 29.3% of GDP in FY2017, with capital spending at a record high of nearly 8% of GDP.
• Despite the increase, budget underspending continued, with only 65% of planned capital expenditures executed.

5. Trade and Remittances

• Imports reached a record high of 37% of GDP in FY2017, averaging US$750 million per month.
• Exports have permanently declined, remaining below the five-year average despite strong economic growth.
• Export decline is attributed to reduced trade with India and the appreciation of the real effective exchange rate (REER).

6. External Sector Pressures

• The trade deficit widened, and remittances slowed, contributing to a current account deficit of -0.4% of GDP in FY2017.
• Seasonally adjusted remittance growth was only 2% in July 2017, indicating a slowdown.
• Migrant worker outflow contracted for three consecutive years, reaching a five-year low in FY2017.

Outlook, Risks, and Challenges

• Economic growth for FY2018 is expected to moderate from earlier forecasts, averaging around 4.5%.
• The fiscal deficit is projected to widen to 4.3% of GDP due to increased government spending from the transition to federalism and disaster response.
• Despite this, financing should not be a problem due to low debt-to-GDP ratio and a large cash reserve.
• The current account is expected to remain under pressure due to high imports and slow remittance and export growth.
• Political instability and the transition to a new federal structure pose risks to policy continuity and service delivery.
• The ongoing reconstruction efforts from the 2015 earthquake and the 2017 floods are straining government resources.

Special Focus: Fiscal Architecture for Federal Nepal

• The transition to federalism raises critical fiscal issues: functions, finance, and functionaries.
• The functions category involves determining which level of government is responsible for which service.
• The finance category requires defining how revenue and debt are collected and managed at different levels.
• The functionaries category deals with restructuring the existing civil service to accommodate the new federal framework.
• The current constitutional provisions and laws may lead to a mismatch between revenue collection and service delivery levels.
• A well-designed system of intergovernmental transfers can mitigate this mismatch and ensure smooth fiscal operations.

Key Challenges

• Budget underspending has become a systemic issue, driven by unrealistic targets and delayed implementation of large projects.
• Quality of public expenditure remains a concern, with a large portion of capital spending concentrated in the last quarter of FY2017.
• Fiscal decentralization is still in early stages, and the design of intergovernmental transfers is crucial for effective service delivery.
• External risks include the potential for a sharper deterioration in the balance of payments due to reduced migrant worker outflow and the impact of India's Goods and Services Tax (GST) on Nepalese competitiveness.

Conclusion

The document highlights the resilience of Nepal's economy in the face of natural disasters and policy uncertainties, but underscores the need for effective fiscal architecture to support the new federal system. It emphasizes the importance of intergovernmental transfers, improving the quality of public spending, and addressing external sector vulnerabilities to ensure sustainable economic growth and development.