KATHMANDU / Economic
growth is estimated to contract sharply to 2.1% in FY2021 from the COVID-19
pandemic and related lockdown, despite efforts by the government to curb the
economic fallout from the crisis, states the World Bank’s latest Nepal Development Update. Transitioning the economy from the relief stage
through to restructuring and resilient recovery requires a strategic approach
to get the country back on a sustainable and inclusive growth path.
As per
the report, economic activity in the tourism sector will remain weak and
remittances inflows will be moderate. Supply chain disruptions will keep
industrial and agricultural production low. Low economic activity and oil
prices will also keep imports low and below the pre-crisis levels, leading to a
projected narrowing of the current account deficit to 6.5 percent of GDP. Lower
imports will continue to limit revenue collection. However, fiscal measures
announced as part of the FY2021 budget, including a revision of custom duties,
will provide some support to the budget as spending levels on relief and
recovery efforts remain elevated. Taken together, the fiscal deficit is
projected to marginally decline to 6.6 percent of GDP in FY2021.
While the
government has adopted various relief measures to contain the pandemic, reduce
the impact on households and provide economic support to the most vulnerable
firms, the report highlights the importance of reforms to support a resilient
recovery.
“For a resilient
recovery and inclusive growth, economic support measures to firms and workers
in the informal sector will be important,” said
Dr. Kene Ezemenari, World Bank Senior Economist and author of the update. “Incentives
to agribusiness-based and forest-based SMEs, with a focus on returnee
migrants and youths, could help increase employment and food security.
Inclusive growth could be further promoted through entrepreneurship support
programs and grants to small and medium enterprises,” she added.
The
report outlines four pillars in the areas of health, social support, economic
support and cross-cutting priorities including fiscal sustainability and focus
on digital and green economies. This includes measures to strengthen the health
system and scale up social protection systems, including the adoption of a
social registry to make these systems more resilient against future shocks.Enhanced
school sanitation and health protocols including health screening, water and
sanitation facilities would be needed to enable a return to schooling for
children.
Expansionary fiscal and
monetary policies will be important in the initial relief stage to support
banking sector liquidity and provide relief to households and firms. From restructuring through
to resilience, expansionary and monetary policies will help pave the way for
strengthening financial sector stability in the long run while also building
resilient public services and green growth through sustainable and resilient
infrastructure, strengthened solid waste management and air and water pollution
control.
Related
investments and reforms would be critical to expand coverage of digital
services and infrastructure to support e-servicesand help promote e-commerce. This
would also help expand the reach and coverage of mobile banking and digital
financial services to underpin development of e-commerce. However, digitization
is also limited across the economy. Addressing this will require removal of access
restrictions to any under-utilized fiber optic backbone managed by the
governments and public utilities and the introduction of appropriate rules to
manage conditions of access, capacity allocation, and access pricing. This
would also help expand access in rural and remote areas.
For Nepal to emerge stronger from the crisis, it is
important to adapt quickly to the new reality,” statedFaris Hadad-Zervos,
World Bank Country Director for Maldives, Nepal and Sri Lanka. “We are encouraged to note the early start made by the
government with the development of Nepal’s Relief, Restructuring and Resilience
plan and are committed to work together with multilateral development banks and
development partners in helping the country build back greener and better.”
