The government has exaggerated the country’s economic performance, even as the main statistics body paints a bleak picture of the economy.
During the presentation of the government’s policies and programs for the fiscal year 2023-24 in a joint session of the House of Representatives and the National Assembly on Friday, President Ramchandra Paudel claimed that all sectors were experiencing positive outcomes due to the government’s policies and reform measures.
“The government’s achievements in a short period are encouraging. Economic indicators are showing positivity,” stated the President. “Remittances have notably increased, and as the economy finds its natural rhythm, there has been a positive impact on revenue, foreign aid, and foreign investment. Foreign exchange reserves have grown.”
However, the government’s assertions come at odds with projections from the National Statistics Office, which forecasted the country’s economy to grow by only 1.86 percent in the current fiscal year 2022-23. These figures fall well below the projections made by international agencies such as the World Bank, the Asian Development Bank, and the International Monetary Fund, which anticipate Nepal’s economy to grow around four percent in the current fiscal year.
“We have presented our findings, which reveal that the country’s economic situation is not favorable. We urge the media to disseminate this information to the people and all three tiers of government,” stated Ram Prasad Thapaliya, chief statistician at the National Statistics Office, earlier this month.
Economists attribute the lackluster economic performance to a tight monetary policy implemented to maintain external sector balance, including narrowing the current account deficit, increasing foreign exchange reserves, and reducing public spending. These measures have dampened the overall demand for goods and services, resulting in lower-than-expected real GDP growth of 1.9 percent, the lowest since the fiscal year 2015-16, except for the contraction caused by the COVID-19 pandemic in 2019-20.
The National Statistics Office’s projection also indicates contractions in sectors such as manufacturing, wholesale and retail, and mining in the current fiscal year.
Despite the government’s claims of improvements in revenue collection, foreign aid, and foreign investments in its policies and programs, its own data suggests otherwise.
According to the Financial Comptroller General Office (FCGO), the government’s revenue collection as of May 18 amounted to Rs764 billion, a sharp decline from the Rs870 billion collected during the same period last fiscal year. Even after lifting import restrictions, customs revenue has shown little improvement.
The Department of Customs set a revenue collection target of Rs57 billion for the Baisakh period (mid-April to mid-May), but it only managed to raise Rs33 billion, according to Punya Bikram Khadka, information officer at the department. Khadka further added, “The department was given a target of collecting Rs548 billion by mid-May this fiscal year, but it has only achieved 58 percent of the target.”
Similarly, inland revenue collections by mid-May of the current fiscal year were lower compared to the same period in the previous fiscal year. According to the Inland Revenue Department, collections as of mid-May stood at Rs371.59 billion, compared to Rs378.32 billion during the same period last fiscal year.
Contrary to the government’s claims, foreign direct investment (FDI) received by Nepal during the first three quarters of the current fiscal year has sharply declined compared to the corresponding period in the previous fiscal year. Nepal Rastra Bank reports that the country received FDI amounting to Rs.2.62 billion, which represents nearly 16 percent of the total FDI received during the same period in the previous fiscal year 2021-22. In comparison, Nepal received Rs16.51 billion during the first three quarters of the last fiscal year.
Likewise, foreign aid received by the government as of mid-April was significantly below the target. According to the Public Debt Management Office, the government received Rs64.99 billion in loans from donors, falling short of the target of Rs242 billion for the current fiscal year.
The government’s inability to collect sufficient revenue and secure external resources has placed a severe strain on public finances. Consequently, the government has struggled to pay salaries and pensions to its staff and retired workers in a timely manner in recent months.
Economist Keshav Acharya highlights that the overall economy is in jeopardy, with poor economic indicators, despite improvements in external sectors such as balance of payments and foreign exchange reserves.
“The government’s fiscal position is precarious, inflation is high, there is little demand for credit, banks are hesitant to provide loans, and investor confidence has declined,” stated Acharya. “This is not a normal situation for the economy.”
Acharya further explained that the government’s finances are under severe strain due to challenges in revenue collection and mobilizing foreign resources. “This has limited the government’s ability to spend the capital budget,” he added.
As of May 18, the capital expenditure only accounted for 34 percent of the total allocations, according to the FCGO. Acharya questions how the economy can receive the necessary stimulus for growth if the capital budget remains underutilized.
While the central bank’s monetary tightening and increased remittances have helped stabilize the external sector, the economy has suffered significant setbacks since the beginning of the fiscal year. The National Statistics Office reports a meager 0.8 percent growth in the first quarter and negative growth of 1.1 percent in the second quarter year-on-year.
Hem Raj Regmi, deputy chief statistician at the National Statistics Office, attributed these declines to prohibitions on crusher plants earlier in 2023, which impacted construction activities and led to a contraction in the sector. He also noted that the manufacturing, wholesale and retail sectors were adversely affected by banks’ reluctance to provide loans.
While the National Statistics Office projects a 1.9 percent growth for the current fiscal year, Regmi believes it will be challenging to achieve even this modest target if the government lacks the resources to spend its capital budget.
Key highlights of the policies and programs:
- The 2080s BS to be commemorated as the “Visit Nepal Decade,” with 2025 AD designated as the “Special Tourism Year.”
- Infrastructure projects to operate in two shifts.
- Merger of Radio Nepal and Nepal Television.
- Aim to conclude the transitional justice process within two years.
- Mobilization of resources with a focus on Karnali Province, Far West Province, and Madhesh Province, which have lagged behind in the human development index.
- Arrangements to allow Nepali citizens abroad to cast their vote in periodic elections.
- Enhancement of self-reliance in the production of ammunition, explosives, uniforms used by security personnel, and other military materials required for security and defense.
- Completion of the remaining work on the peace process and transitional justice within the next two years.
