However, the finance minister kept on insisting that this growth rate is achievable until last week, when he conceded that his projection was impossible to attain this year. With a slight downward revision, he still drumbeats a growth rate of around five percent. The government’s statistical agency, Central Bureau of Statistics (CBS), in its midyear assessment, reported that GDP growth rate has been around 3.5 percent, with non-agricultural sector growth rate stagnating at 4.81 percent. The agricultural sector grew at a mere 2.13 percent, as against a projection of 4.5 percent in the budget. The CBS forecasts that growth rate would be around 3.9 percent this year. In reality, the GDP growth rate would be even lower than this level at the end of this fiscal year.
The economy has never seen a double-digit growth rate in the past five decades. The highest GDP growth rate (9.6 percent) was attained in 1984. This was not surprising given the fact that it was simply a recovery from three consecutive years of recession. The growth rate in 1983 was minus 2.98 percent. In no other years have growth rate touched this upper bound. More troubling is the fact that the growth rate has never been stable. Roughly, every increase in growth rate is followed by a decline. The economy experienced more bouts of growth decelerations than accelerations, i.e. more episodes of declining growth rates than increasing growth rates. Since 1960, the economy witnessed 19 instances of an increase in GDP growth rate and 25 instances of growth collapses. There are no instances of sustained growth rate of over five percent for three consecutive years. The average GDP growth rate in the past five decades was 3.57 percent.
Given this historical peek at GDP growth rate of Nepal, it appears that the growth projection for the next three years by the finance minister was very unrealistic in the first place. Unrealistic because even during the heyday of liberalization policies designed according to the Washington Consensus - pushed vigorously by international financial institutions and development agencies during the 90s - the economy did not witness sustained growth rate of over five percent for three consecutive years. Now, the economy does not even have the necessary conditions and institutions to sustain growth rate of over five percent even for two years. This would require a vibrant private sector, entrepreneurial citizenry, business-friendly fiscal policy, less red tape, and more importantly, infrastructure required for unleashing the entrepreneurial spirits in the economy. We severely lack all of these conditions right now. The populist talk of double-digit growth rate has no real substance on it.
A sustained growth rate of over five percent is not achievable from the agricultural sector; the non-agricultural sector has to play a vital role. Even though the agricultural sector still account for over 40 percent of sectoral value addition to GDP, almost all of the instances of growth increases were in fact triggered by growth in industrial and service sectors. In the present context, it is simply not realistic to talk about achieving growth rate of over five percent as the industrial sector is already going bust due to concerns regarding appropriateness, labor disputes, and power shortages. An improvement on these fronts would position the industrial and service sectors in a situation where they will continue to contribute to the economy at the rate they were doing in the past.
Note that this is an optimistic assessment because the manufacturing sector, which is expected to register minus 0.5 percent growth rate, has already lost major markets abroad due to stiff competition in price and quality from big players from the emerging economies. Furthermore, the ongoing global recession, decreasing demand of export commodities, lull in tourism sector, and decline in remittances would ground this sector’s activities. This means even if major thorny issues of the industrial sectors were resolved, its contribution to GDP would still be lower than during the previous years. A sustained growth rate of over five percent is unimaginable unless other complementary factors, in addition to the ones discussed above, such as good infrastructure, coordinating failures in the industrial sectors, monetary stability, and enhancement of human resources, among others are rightly instituted. This will at least help kick-start the growth engine. However, double-digit growth rate is not guaranteed!
The finance minister, who has so far been obsessed with revenue collection rather than focusing on achieving development and growth objectives outlined in his budget, is making overly optimistic and unrealistic claims about growth rates without fully assessing the strongest and binding constraints on economic activity in the economy. Hoping for a high growth rate is good, but just aiming and dreaming, without viable progressive reforms is not enough to achieve it.
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