Global growth picked up and growth in South Asia remained strong despite adverse weather conditions. In Nepal, despite subdued inflation, robust government spending, and the prospect of a stable government, economic growth is expected to moderate in FY2018 because of the contraction in agricultural output, a modest recovery of exports, higher interest rates and a tightening of credit. While the government revenue remains robust, increased government expenditure is expected to widen the fiscal deficit in FY2018 and during the forecast period. As departures of Nepali migrant workers going abroad continue to decline, remittances have slowed resulting in larger current account deficits. At the same time, growth of deposits has slowed faster than that of credit resulting in diminished ability of banks to lend.
The special focus of the Update assesses the challenging path ahead facing the new government by taking a closer look at the drivers of recent fiscal spending, how expensive the transition to a federal structure of government could potentially be and how can the two be managed. To manage the spending pressures more adequately, a two-pronged approach is proposed. First, it is necessary to revisit increases in spending over the last few years and eliminate wasteful spending while improving the efficiency of necessary and productive spending. Second, a properly sequenced and time-bound transition plan is needed that would guide the transition to a federal system of government, anchor citizen expectations, and allow for detailed costing of the transition. It should be adopted at the earliest and rigorously executed by the new government.
Read the synopsis in our news release.
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Last Updated: Apr 17, 2018