亚开行-宏观经济动态：尼泊尔（2018年4月）（英文）-2018.4-38页-2mb

Summary of Nepal's Macroeconomic Update, April 2018

Core Content

This report provides an overview of Nepal's macroeconomic performance for FY2017 and FY2018, along with projections for FY2019. It highlights the impact of natural disasters, political instability, and structural challenges on economic growth, inflation, and public finances. The document also emphasizes the importance of agricultural commercialization and the role of infrastructure development in driving future growth.

Main Points

Economic Growth

• FY2017 Growth: Nepal's economy grew by 6.9%, driven by recovery from the 2015 earthquakes, trade normalization, and favorable monsoons. The agriculture sector grew by 5.3%, while the industry sector expanded by 10.9% and the services sector by 6.9%.
• FY2018 Growth: Growth is expected to slow to 4.9%, affected by floods in August 2017 and the erosion of base effects. Paddy production is projected to decline by 1.5% to 5.1 million tons, but other summer crops like maize and millet are expected to increase.
• FY2019 Growth: A 5.5% GDP growth forecast is based on normal monsoons and accelerated mega projects, including the Upper Tamakoshi Hydropower Project (456 MW), which will reduce power import reliance during the rainy season.

Inflation

• FY2017 Inflation: Moderated to 4.5%, down from 9.9% in the previous year, due to increased agricultural output and subdued inflation in India.
• FY2018 Inflation: Expected to rise to 5.5%, slightly above FY2017 levels. However, it will remain below the central bank's target of 7.0%.
• FY2019 Inflation: Projected to increase to 6.0%, still lower than the 8.1% average for FY2013-FY2017, assuming normal harvests and modest oil price increases.

Fiscal Sector

• Capital Expenditures: Surged by 26.9% y-o-y in the first seven months of FY2018, but execution was only 19.7%, far below allocation. The expected execution rate for FY2018 is 72.0%, leading to capital spending around 8.0% of GDP, below the target of 11.5%.
• Recurrent Expenditures: Increased by 46.3% y-o-y, driven by fiscal transfers to local and provincial governments and election expenses.
• Budget Deficit: As of mid-February 2018, the budget deficit was NPR 26.4 billion, down from a surplus of NPR 17.9 billion in FY2017. The deficit is expected to remain below the 10.6% of GDP forecast due to underperformance in capital expenditures.
• Public Debt: Total external public debt rose to NPR 436.5 billion (15.0% of GDP) in mid-FY2018, up from NPR 402 billion in the same period of FY2017. Internal borrowing increased to NPR 394.5 billion (13.5% of GDP), indicating a higher public debt-to-GDP ratio than the historical average of 29.2% for FY2012-FY2017.

Monetary Sector

• Money Supply (M2): Grew by 13.5% y-o-y as of mid-February 2018, but at a slower pace than the previous year. M2 reached NPR 2790.5 billion in the first seven months of FY2018.
• Net Foreign Assets: Declined by 2.0% through mid-February 2018, due to sluggish remittances and a growing trade deficit.
• Net Domestic Assets: Increased by 13.8% to NPR 1785.7 billion in the first seven months of FY2018.

External Sector

• Trade Deficit: Widened to $5.8 billion in mid-February 2018, driven by stronger import growth (up 23.9% y-o-y) than export growth (19.2% y-o-y). Imports of vehicles, spare parts, and petroleum products surged.
• Current Account Deficit: Expanded to $1.37 billion in mid-February 2018, up from $99.2 million a year earlier. This is attributed to limited remittance growth and a growing trade deficit.
• Foreign Exchange Reserves: Reached $10.2 billion, sufficient to cover 10 months of imports.

Key Challenges and Risks

• Fiscal Challenges: Weak revenue mobilization, limited experience and capacity of provincial and local governments, and the risk of a widening budget deficit in FY2019 due to increased spending and weak revenue collection.
• Industrial Slowdown: Industrial growth is expected to be lower in FY2018 due to low investment in the manufacturing sub-sector, exacerbated by political instability and structural bottlenecks.
• Agricultural Constraints: Despite being a key sector contributing to 33% of GDP, Nepal's agriculture remains largely subsistence-based, with low productivity, poor market linkages, and inadequate infrastructure.
• Infrastructure Development: The pace of infrastructure project implementation remains slow, affecting the potential for growth in the coming years.

Issue Focus: Agriculture Development with Commercial Farming

• Importance of Commercialization: Agriculture continues to provide livelihood to 66% of the population but is constrained by low productivity and limited competitiveness in international markets.
• Commercial Farming Potential: Contract and cooperative farming methods can significantly boost revenue generation, employment, and export potential. Nepal has a comparative advantage in high-value, low-volume crops like ginger, cardamom, tea, and lentils.
• Barriers to Commercialization: Legal, institutional, financial, and infrastructural challenges hinder the growth of commercial agriculture. Access to credit, availability of inputs, and timely completion of major infrastructure projects such as the Sikta Irrigation Project are crucial for agricultural development.
• Case Studies: The report references successful models like contract farming in India and AMUL's dairy cooperative movement, suggesting that similar strategies could be applied in Nepal.

Conclusion

Nepal's economic growth is expected to slow in FY2018 due to natural disasters and base effects, but it remains on a positive trajectory with a forecast of 5.5% GDP growth for FY2019. The government's fiscal policies and increased spending on local and provincial governments are contributing to a growing public debt. Inflation is expected to remain moderate, while the external sector faces challenges due to a widening trade deficit and limited remittance growth. Agricultural commercialization, supported by improved infrastructure and policy reforms, is seen as a key driver for future economic growth and export potential.