2017年-世界发展银行全球_Nepal_Development_Update_May_2017___Strong_Rebound_Mounting_Risks_30页_4mb

Nepal Development Update Summary: Strong Rebound, Mounting Risks

Core Content

This Nepal Development Update, published in May 2017, provides an overview of the country's economic developments and outlook for the following fiscal years. It highlights a strong rebound in economic activity following two years of challenges, including the 2015 earthquake and trade disruptions. However, it also identifies growing risks and challenges that could affect the sustainability of this recovery.

Main Economic Developments

1. Global and Regional Economic Trends

• Global Growth: Global economic growth is low but showing signs of recovery. In 2016, it was at a post-crisis low, but there are indications of strengthening in both emerging and advanced economies.
• South Asia Outperformance: South Asia has maintained its position as the fastest-growing region, with an estimated 6.7% growth in 2016, despite temporary setbacks such as India's demonetization.
• Remittances Decline: Remittances to developing countries declined by 2.4% in 2016, and this trend is expected to continue, posing a risk to Nepal's economy, which relies heavily on remittances.

2. Economic Recovery in Nepal

• Agricultural Output: Rice production reached a record high of 5.2 million tons in FY2017, up from 4.2 million tons in FY2016, due to favorable monsoon conditions.
• Hydropower Expansion: Over 100 MW of hydropower capacity was added, contributing to a record high in capacity addition. This helped improve electricity availability.
• Tourism Recovery: Tourist arrivals reached pre-crisis levels during the September–December 2016 season, indicating a strong rebound in the sector.
• Transport and Trade: Transport activity and wholesale and retail trade have fully normalized, with increased imports of capital goods and machinery.

3. Inflation Trends

• Inflation Moderation: Inflation slowed significantly in FY2017, reaching a decade low of 2.9% (y/y) in the first eight months, primarily due to falling food prices.
• Nonfood Inflation: Nonfood inflation also slowed, though it remained somewhat elevated. Housing rent and utilities continue to exert upward pressure.
• Inflation Gap with India: Nepal's inflation gap with India turned negative, reflecting a favorable external environment, particularly from India's demonetization policy.

4. Government Revenue and Expenditure

• Revenue Performance: Government revenue has performed well, exceeding the six-month target. All revenue streams, including taxes and non-taxes, are growing at a healthy rate.
• Expenditure Growth: Expenditure increased significantly in FY2017, with capital spending reaching a record high. However, budget execution has underperformed.
• Fiscal Deficit: The fiscal deficit is expected to widen during the forecast period, but financing is not expected to be a problem due to large government cash reserves.

5. Trade and Remittances

• Import Growth: Imports have increased to a new higher trend level, reaching over US$650 million per month, up from a five-year average of US$550 million.
• Export Struggles: Exports have not fully recovered, particularly to India, which accounts for 70% of total exports. Industrial goods exports have dropped to US$25 million per month from US$38 million before the disruption.
• Exchange Rate Pressure: The continued appreciation of the real effective exchange rate is affecting export competitiveness.

6. Financial Sector and Monetary Policy

• Credit Growth: Credit growth has been rapid, reaching its highest rate since 2012, but deposit growth has slowed.
• Loanable Funds Shortage: The rapid credit growth and slowing deposit growth have led to a decrease in loanable funds, exacerbated by prudential lending limits and large government cash balances.
• Monetary Tightening: The government's large cash reserves have contributed to monetary tightening, affecting liquidity in the financial sector.

Outlook, Risks, and Challenges

Economic Outlook

• Growth Moderation: Economic growth is expected to moderate in the next two fiscal years, averaging around 5%, aligning with Nepal's economic potential.
• Sectoral Recovery: Agriculture, construction, and industry are expected to continue growing, but uncertainty from political transitions and elections could affect other sectors.

Risks and Challenges

• Downside Risks: Domestic risks are increasing, particularly due to the political environment and the transition to a federal structure.
• Fiscal Challenges: Overly ambitious and unrealistic budget allocations have led to significant underspending, keeping government deposits intact.
• Export Vulnerability: Continued underperformance of exports, especially to India, and the appreciation of the Nepali rupee could lead to a permanent decline in export volumes.
• Remittances Concerns: Remittances, which account for nearly 1/3 of GDP, are expected to remain sluggish, especially due to reduced migrant worker departures to GCC countries and decreased demand from these regions.

Key Figures and Tables

• Figure 1: Rice production reached a record high of 5.2 million tons in FY2017.
• Figure 2: Hydropower capacity addition reached a record high in FY2017.
• Figure 3: Transport, industrial, and capital goods imports increased in FY2017.
• Figure 4: Tourist arrivals reached pre-crisis levels during the September–December 2016 season.
• Figure 5: Inflation slowed to a decade low, primarily due to food price declines.
• Figure 6: Nonfood inflation slowed but remained somewhat elevated.
• Figure 7: Inflation gap with India turned negative, reflecting a favorable external environment.
• Figure 8: Government revenue continued to perform well.
• Figure 9: Expenditure significantly increased, especially on capital goods.
• Figure 10: Capital spending reached a record high in FY2017.
• Figure 11: Imports reached a new higher trend level.
• Figure 12: Goods exports may have been permanently lowered.
• Figure 13: Exports to India have not recovered.
• Figure 14: Continued appreciation of the real effective exchange rate affects exports.
• Figure 15: Industrial goods exports dropped to US$25 million per month.
• Figure 16: Textile, iron, and jute exports saw the largest declines.
• Figure 17: Remittances growth remains negative after controlling for seasonality.
• Figure 18: Migrant worker departures have stabilized at a new lower level.
• Figure 19: Departures to Malaysia and Saudi Arabia have stabilized.
• Figure 20: Lending grew at a breakneck speed.
• Figure 21: New vehicle and margin lending were key drivers of credit growth.
• Figure 22: Deposit growth slowed.
• Figure 23: Credit-Deposit Differential (CCD) reached a high since 2011.
• Figure 24: The CCD has added more funds to the treasury and soaked liquidity from the market.
• Figure 25: Interest rates have risen to a 3-year high.
• Figure 26: Overdraft and margin lending may have fueled speculative behavior in the stock market.
• Figure 27: NEPSE remains disconnected from the regional market.
• Figure 28: GDP growth reached a record high in FY2017.
• Figure 29: All sub-sectors rebounded in FY2017.

Conclusion

• Growth Achievement: FY2017 recorded the highest GDP growth since 1994, at 7.5%, driven by a base effect, increased agricultural output, improved electricity supply, and higher investment.
• Sustainability Concerns: Despite strong growth, the economic recovery faces sustainability challenges due to ongoing trade imbalances, slow remittance growth, and risks in the financial sector.
• Policy Implications: The government needs to address fiscal discipline, improve the efficiency of public investment, and manage external sector pressures to ensure long-term economic stability.