Releasing the Asian Development Outlook 2010 here on Tuesday, ADB expressed such wariness, referring to the lower growth rate of remittances, fading exports and decline in foreign currency reserve recorded in the last six months. [break]
As political instability, frequent strikes, transport blockades and power shortages along with unfavorable weather continue to hit productions, ADB has projected Nepal´s economy to grow at mere 3.5 percent in 2010.
It has estimated agriculture to grow by only 1 percent this year as delayed and reduced monsoon have hit productions of paddy and maize - two major summer crops.
“Industry´s performance too will be checked by fuel and power shortage and sporadic labor tensions, all of which will restrict recovery in manufacturing,” ADB said in the report. It forecasts construction activities to slow down this year due to reduced credit from commercial banks. Consequently, the industry is projected to grow by mere 1.5 percent in 2010.
However, ADB expects Nepal´s economic growth to climb to 4.5 percent in 2011 on the back of global recovery and domestic landscape becoming more clear and conducive to economic activity.
Its projection for 2011 is based on the assumption that weather during the year will remain normal and no disruptions will be recorded on the transportation of fertilizers and seeds, which will enable agriculture growth to bounce back at 3 percent during the year.
It projects industry to grow by 2.5 percent in 2011, assuming that power shortages will ease somewhat and strike will lessen, with political parties agreeing not to organize any banda -- politically inspired shutdowns -- during Nepal Tourism year 2011.
Despite gloom running deep in manufacturing, construction and agriculture -- three major sectors that generate major employment opportunities, ADB expects service sector to continue to drive growth.
The report states that real estate renting and businesses will be hit by credit limitations that NRB has placed on commercial banks to counter price pressure. Still, it expects services to expand by 5.5 percent in 2010 and 6 percent in 2011 due to better tourism receipts among others.
As non-economic factors will continue to drive up inflation, ADB has projected country´s inflation to remain fairly high at 10 percent in 2010 but moderate to 8 percent in 2011 with lessening of supply disruptions.
ADB has tagged infrastructure deficit, particularly in transport infrastructure, power and irrigation, as a major bottleneck to economic growth and development. “In particular, power shortages could have adverse social and political implications, if not addressed expeditiously,” ADO said in the report.
The report also noted lack of political consensus as a major challenge to implement the new energy strategy that aims to promote power sector. It has sought the government to give private power developers economically viable market access by clarifying and liberalizing connection and tariff policy.
“A fast-track approval process for hydropower projects needs to be established,” ADB emphasized in the report.
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