Date: 5 May 2011
The event will be held in Kathmandu, Nepal, with the participation of distinguished participants from academia, government, civil society, international organizations, and the press. The list of well known participants making opening remarks, presentations and commenting on the publication includes:
Posh Raj Pandey
South Asia Watch on Trade, Economics and Environment
Yuba Raj Khatiwada
Nepal Rastra Bank
United Nations Resident and Humanitarian Coordinator; and
United Nations Development Programme Resident Representative
Country briefing note <download pdf file>
Some slowdown in 2010 but expected to improve in 2011
In Nepal , GDP growth slowed to 3.5% in 2010 from 4.0% in 2009. This relatively low growth rate is partly due to frequent strikes in the country, persistent labour problems and severe electricity shortages. It is also due to adverse weather conditions on account of which growth in the agricultural sector decelerated in 2010.
GDP is projected to grow at 4% in 2011. Economic revival in the country hinges in large part on the ability of the government to improve law and order, as Nepal 's poor security and political instability limit the government's capacity to spend money and boost rural incomes.
High inflation is a major challenge as food prices rise rapidly
Inflation in Nepal is closely linked to inflation in India because of the fixed exchange rates between the currencies of the two countries as well as the close economic ties between them. In Nepal , there was some deceleration in inflation in 2010 as compared to the previous year, but it remained high at 10.7%. Moreover, food prices rose at a much higher rate.
Budget deficit falls in 2010
In Nepal , with growing tax revenues, the tax-to-GDP ratio has been improving and it stood at over 13% in 2010. The budget deficit fell from 5.0% in 2009 to 3.9% of GDP in 2010.
Exports revive but imports grow more rapidly
In Nepal , while exports contracted, imports grew at a faster rate in 2010, which led to a wider trade deficit. At the same time, growth in worker remittances slowed. As a result, the current account balance turned into a deficit in 2010 from the surplus of the previous few years.
Some major policy challenges
High inflation rates in South Asia can compromise the achievement of sustained high growth rates. Containing inflationary pressures should therefore be a priority in the policy agendas of governments. Both demand- and supply-side factors have contributed to inflationary pressures in the subregion. High budget deficits in most countries have been instrumental in increasing liquidity and have generated price pressures in the face of supply constraints. There is an urgent need to bring budget deficits down to a more sustainable level. Some countries have been tightening monetary policy to alleviate pressures on inflation from the demand side but a combination of monetary, fiscal and other measures is needed to reduce price pressures. Repeated supply shocks pose a constant challenge to sustaining a low inflation regime. A more medium-term approach is needed in order to augment the supply of items of mass consumption by addressing structural supply constraints.
Strong and sustained growth momentum is needed in the subregion to tackle the long-term problem of widespread poverty. Over the past few years, most countries have made progress in reducing poverty. Even today, however, at least one in every three persons in South Asia is classified as poor. The fight against poverty therefore must continue. Countries need to continue pursuing economic reforms to improve productivity, strengthen public institutions, improve economic governance, and build social safety nets to protect the more vulnerable segments of the population.To promote more inclusive growth, the provision of basic services such as health and education and the generation of ample employment opportunities should remain the principal priority in the policy agendas of all governments. Growth cannot be sustained in the long run if it is not inclusive.
On the physical infrastructure side, o ne of the biggest challenges being faced by several countries is improving the electricity supply. Electricity supply disruptions are common in Bangladesh , Nepal and Pakistan . Electricity outages that last many hours have been affecting productivity in all sectors of these economies. Disruptions in the electricity supply are adversely affecting both the quality of life and the development of human capital. Without addressing the severe electricity problem, the full potential of economic growth in some of these countries cannot be realized.
Both short-term and long-term measures are needed to tackle the electricity problem. To boost electricity supply in the short term, In the subregion, transmission and distribution losses vary from 20% to 40% in different countries and theft of electricity is a major problem. There is therefore a need for greater efficiency on both the generation and distribution sides. The promotion of regional cooperation in the energy sector can benefit the participating countries enormously.
Concerning electricity pricing, s ome countries have been providing substantial subsidies, but they are being withdrawn. This process has been raising the cost of living, though, and there is a need to provide some form of protection to the poor. Tariff rates somehow need to be kept affordable for small consumers. It is also worth considering a more targeted approach to providing subsidies following the pattern of food stamps, where electricity stamps or coupons can be given to the poor to pay their electricity bills.