2016年-世界发展银行全球_Nepal_Development_Update_January_2016___Development_Amidst_Disturbances_24页_1mb

Nepal Development Update: Development Amidst Disturbances (January 2016)

Core Content

This document outlines the economic challenges and developments in Nepal during the first half of the fiscal year 2016 (FY16), following two major shocks: the April/May 2015 earthquakes and the subsequent cross-border trade disruptions.

Main Points

1. Recent Economic Developments

• Earthquake Impact:

  • The April/May 2015 earthquakes caused significant human and economic losses, estimated at USD 7.1 billion (USD 5.2 billion in physical damage and USD 1.9 billion in economic losses).
  • Growth in FY15 slowed to 3.4%, the lowest in five years, due to both the earthquake and weak monsoon conditions.
  • The service sector accounted for the largest GDP contraction, contributing 1.2 percentage points, while agriculture and industry each contributed 0.4 percentage points.
  • The earthquake also affected poverty reduction, potentially pushing 0.7-1.0 million more people into poverty in FY15-FY16.
  • Public services such as water and sanitation, education, and health were disrupted, increasing the risk of multidimensional poverty.

• Trade Disruptions:

  • Following the adoption of the new Constitution on September 20, 2015, cross-border trade with India was severely disrupted.
  • Over 85% of Nepal’s imports pass through India, and the disruptions led to a sharp decline in both imports and exports.
  • In the first five months of FY16, imports fell by 32.5% and exports by 32% compared to the same period in FY15.
  • The trade disruptions peaked in mid-November (month four of FY16) and led to severe shortages of fuel and essential goods.
  • Petroleum prices rose sharply, with black market petrol prices increasing by 300-600%, and LPG cylinders becoming unavailable.
  • The trade disruptions also impacted the private sector, with a 43% decline in new private sector lending in the first five months of FY16.

• External Balance and Remittances:

  • Despite the trade deficit shrinking, remittances have helped offset the deficit.
  • In FY15, the trade deficit reached 31.2% of GDP, but by the first five months of FY16, it had decreased by 33%.
  • Foreign reserves increased to USD 9 billion by mid-2016, covering 18.4 months of imports, up from 11.2 months in FY15.
  • However, the outflow of migrant workers slowed significantly, with a 22.6% drop in the first five months of FY16, which could reduce future remittance inflows.

• Government Revenue and Expenditure:

  • Government revenues dropped by 20.6% in the first five months of FY16 due to trade disruptions.
  • Customs revenue fell by 31%, while VAT and excise taxes also declined by 21.3% and 23.2%, respectively.
  • Government expenditure also slowed, with recurrent spending down 12.7% and capital spending down 3.2%.
  • The FY16 budget aimed to increase capital expenditure, but only 4% of the planned amount was spent by mid-December due to poor implementation and trade disruptions.

• Inflation and Supply Chain Issues:

  • Inflation rose sharply, reaching double digits due to supply disruptions.
  • Inflation in FY15 was the lowest in years, but it increased to 11.6% in December 2015.
  • The inflation gap between India and Nepal widened to nearly 6.1 percentage points.
  • Food inflation accelerated to 14.8% in December 2015, and shortages of food products with long shelf lives emerged.
  • The informal market prices were significantly higher than official statistics, indicating a broader impact on the population.

• Sectoral Impact:

  • Industry: Nearly halted due to transport disruptions and lack of raw materials.
  • Tourism: Suffered due to the overlap of peak season (September–November) with trade disruptions.
  • Transport: Severe delays and shortages affected both domestic and international travel.
  • Agriculture: Less affected in the short term, but monsoon conditions and supply chain issues could impact future harvests.

Key Information

• Trade Disruptions:

  • Lasted over four months and severely impacted Nepal's economy.
  • Led to acute shortages of fuel and essential goods.
  • Highlighted Nepal's heavy reliance on India for imports and trade.
  • The 2016 Spring Update (April) will include a full analysis with a Special Focus section.

• Growth Outlook:

  • Prior to trade disruptions, growth was projected at 3.7% for FY16 and 5.5% for FY17.
  • With trade disruptions, the revised growth projection for FY16 is 1.7%, with a wide range of uncertainty (1–2.3%).
  • The trade disruptions have significantly altered the economic outlook, reducing growth prospects.

• Challenges:

  • Nepal faces challenges in recovering from the earthquake, completing political transition, and setting up a new federal structure.
  • The country must also address the need to diversify trade and transport routes to reduce dependency on India.
  • Low and middle-income countries, including Nepal, are at greater risk of long-term economic loss due to inefficient resource allocation post-disaster.
  • The slowdown in migrant worker outflow threatens future remittance inflows, which are a key source of foreign exchange.

Conclusion

Nepal's economy has been significantly impacted by a series of shocks, including the 2015 earthquakes and subsequent trade disruptions. While foreign reserves and remittances have provided some support, the economic slowdown, rising inflation, and sectoral disruptions have created substantial challenges. The country must focus on effective implementation of recovery efforts, diversification of trade routes, and restoring public services to prevent long-term economic setbacks and ensure sustainable growth.