Nepal’s improved political stability boosts economic growth

ESCAP’s annual survey analyses region’s challenges, proposes solutions

Bangkok (UN/ESCAP Information Services) – Nepal’s economic performance in the near future looks positive thanks to increased political stability, a transition towards democracy, and a more favourable investment climate.

Nepal’s gross domestic product (GDP) grew at 5.6 per cent in 2008, compared with 2.6 per cent in 2007, and it is expected to grow around five per cent in 2009, according to the Economic and Social Survey of Asia and the Pacific 2008.

The flagship publication of the United Nations’ regional arm – the Economic and Social Commission for Asia and the Pacific (ESCAP) – this year’s issue is titled "Addressing Triple Threats to Development.” It analyzes the three global crises which have converged to threaten development in the Asia-Pacific region: the financial crisis, fuel and food prices, and climate change. The Survey provides a regional perspective as well as country-specific analyses, outlining ways in which economies in the region can move forward in unison towards a more inclusive and sustainable development path.

The Survey notes how inflation has been driven up in all the countries of South Asia, partly as a result of unrelenting pressure from higher international prices on commodities such as oil, basic metals, wheat, rice and food oil. In Nepal, inflation accelerated from 6.4 per cent in 2007 to 7.7 per cent in 2008. However, with fall in oil and other commodity prices in international markets, inflation is expected to come down in 2009.

The Government of Nepal has had success in raising its revenues over the last two years. Revenue collection increased by 22.6 per cent in 2008 after a 21.3 per cent increase in 2007. As a result, the revenue-to-GDP ratio improved to 13.1 per cent in 2008.

However, there was also a sharp increase in expenditures with investment in Nepalese development growing at a high rate. As a result, the budget deficit stood at four per cent of GDP in 2008, almost the same as the previous year despite the revenue increase.

Much of Nepal’s growth can be attributed to an increase in the amount of money overseas workers sent home to roughly $2.2 billion – a 50 per cent increase in 2008 - allowing more money to be spent in Nepal stimulating the economy. However, if the global economic crisis persists for a longer period, workers remittances may fall in the coming years, causing difficulty for external balance of payments and adversely effecting economic growth.

Among long-term challenges, poverty remains a major problem for most countries in South Asia. Also, economic and social inequalities remain widespread. The main challenge for countries in the subregion, the Survey notes, is not only to improve growth rates on a sustained basis but also to make them more inclusive for a rapid reduction in poverty and inequality.

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The Economic and Social Survey of Asia and the Pacific 2009 is available online from 0500 GMT/1200 Bangkok on 26 March at: http://www.unescap.org/survey2009/index.asp

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