Nepal fails to achieve growth target set by 15th Plan

The Annapurna Express

The Annapurna Express

Nepal fails to achieve growth target set by 15th Plan

The country could not achieve the higher economic growth target set by the 15th Plan due to political instability and the Covid-19 pandemic

When the 15th Plan started in the fiscal year 2019/20, there was much hope for the country’s economic transformation, especially with a stable government with an almost two-thirds majority in place.

The KP Sharma Oli-led government also aimed for high-trajectory economic growth. The National Planning Commission (NPC) in the 15th Plan had set a growth target of 8.5 percent in FY 2019/20, 9.6 percent in FY 2020/21, 9.9 percent in FY 2021/22, 9.6 percent in fiscal 2022/23, and 10.3 percent in FY 2023/24.

But it didn’t take much time for hope to turn into despair as the country plunged into political instability and the Covid-19 pandemic hit the country hard.

The intra-party infighting in the erstwhile Nepal Communist Party (NCP) formed after the merger between the CPN (UML) and the CPN (Maoist Centre) overshadowed the government’s economic priorities. And, the Covid-19 pandemic during which the government enforced a months-long lockdown further hit the economic activities and the private sector.

As a result, economic growth in FY 2019/20 was limited to 2.4 percent. As the Covid-19 pandemic continued in FY 2020/21 too, the economy grew by 4.3 percent in FY 2020/21 and 5.8 percent in FY 2021/22.

According to economists, the growth target set by the NPC is far from reality. “There is a trend of setting the growth target based on ambition instead of ground reality,” said a former Finance Secretary. “So, it is obvious to see those targets went unachieved.”

The writing is already on the wall about the economic performance in FY 2022/23 with the country witnessing economic growth of just 0.8 percent during the first quarter of the current fiscal year. It is the lowest growth in the last seven years in the first quarter on a year-on-year basis.

The economic growth slumped because of negative growth in five areas, namely construction, mining and quarrying, wholesale and retail and repair of motor vehicles, transportation and storage, and education, according to the National Statistics Office. Even during Dashain and Tihar festivals and before the November 20 elections, businessmen were complaining about reduced market demand for goods and services. A part of market dynamism was also affected by import control measures with the government banning imports of automobiles, liquor, and expensive mobile sets till December 2022.

In the federal budget for FY 2022/23, the government has targeted eight percent economic growth. But after six months, the mid-term review slashed the growth rate to 4.5 percent. After concluding the Article IV mission, the International Monetary Fund said on February 28 that Nepal’s economy is expected to grow by just 4.4 percent in the current fiscal year.

“Nepal’s real GDP growth is supported by the ongoing recovery of tourism, strong agriculture sector performance in the first half of the year, and resilient remittances,” the International Monetary Fund (IMF) said in a statement. The IMF has warned that the country remains vulnerable to shocks, from volatile and higher global commodity prices and from natural disasters and weather variability.

NPC has projected that the country’s economy would grow by six percent in FY 2023/24, the final year of the 15th plan. There is a projection of economic growth of 7.4 percent in fiscal 2024/25 and 8 percent in the fiscal year 2025/26, as per the NPC’s mid-term economic targets.

Given the fractured political mandate after the elections on November 20 last year, economists are skeptical about attaining the growth target. According to them, the country could have entered into a new cycle of political instability. “In the space of just two months since the Pushpa Kamal Dahal-led government was formed, another government is being formed with a new alliance,” the former Finance Secretary said.

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