Macroeconomic Update August 2014_2014-09-07

5/20/2018 Macroeconomic Update August 2014_2014-09-07

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Macroeconomic Update August 2014

Chandan Sapkota and Deepak Bahadur Singh

Asian Development Bank

Nepal Resident Mission

Luncheon with journalists, 07 September 2014

2014-09-07 1

The views expressed in this document are those of the author and do not necessarily reflect the

views and policies of the Asian Development Bank, or its Board of Governors, or the

governments they represent.


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FY2014 Economic OverviewReal Sector

Fiscal Sector

Monetary SectorExternal Sector

FY2015 GDP Growth and Inflation Outlook

Mainstreaming Environment for Growth and Poverty Reduction

Key Economic Challenges

2014-09-07 2

Presentation Outline


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2014-09-07 3

FY2014 Economic Overview


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GDP grew by an estimated 5.2%

Low absorption capacity: Actual expenditure < plannedexpenditure

Robust revenue mobilization and low fiscal deficit

Overall inflation moderating but remains elevated

Excess liquidity throughout the year

Favorable external sector

2014-09-07 4

FY2014 Economic Overview


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2014-09-07 5

Real Sector

494 498

612

716 705 710 714

728

982

0

100

200

300

400

500

600

700

800

900

1000

FY2008 FY2009 FY2010 FY2011 FY2012 FY2013R FY2014P

Nominal per capita income (US$)

Nominal per capita GDP Nominal Per capita GNI

Nominal per capita GNDI

8.8

7.5

7.1

6.0

5.7

5.5

4.9

4.8

4.74.7

3.7

3.0

2.9

1.9

1.8

0 2 4 6 8 10

Wholesale and retail trade

Transport, storage and communications

Hotels and restaurants

Education

Public administration and defence

Health and social work

Fishing

Electricity, gas and water

Agriculture and forestryCommunity, social and personal services

Mining and quarrying

Real estate, renting and business activities

Construction

Manufacturing

Financial intermediation

Sub-sectoral growth in FY2014 (% change)

0

5

10

15

20

25

FY2010 FY2011 FY2012 FY2013 FY2014

FDI commitment & actual inflow (NRs billion)

Service Energy

Manufacturing Tourism

Agriculture Mineral

Construction Total FDI commitment

4.3 3.8

4.6

3.5

5.2

0

1

2

3

4

5

6

FY2010 FY2011 FY2012 FY2013R FY2014P

Contributions to GDP growth

Agriculture ManufacturingConstruction Other industry

Wholesale & retail trade Real estate & renting

Other services GDP growth (basic prices)


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Fiscal Sector

71.8 71.6 70.882.6 74.9

0

20

40

60

80

100

120

FY2009 FY2010 FY2012 FY2013 FY2014R

Expenditure absorption rate

Recurrent Capital

15.4 15.9

14.615.4

3.5 3.4 3.2 3.3

0

5

10

15

20

FY2011 FY2012 FY2013 FY2014RE

Expenditures (% of GDP)

Total expenditure Recurrent Capital

8.8

9.810.5

11.9

13.413.0

13.9

15.316.2

0

2

4

6

8

10

12

14

16

18

FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013RFY2014P

Tax revenue (% of GDP)

-1.9

-2.4-2.2

0.7

-0.1

-3.0

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

FY2010 FY2011 FY2012 FY2013R FY2014P

Fiscal deficit (% of GDP)


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2014-09-07 7

Monetary Sector

9.69.6

8.3

9.9

9.1

0

2

4

6

8

10

12

FY2010 FY2011 FY2012 FY2013 FY2014

Contributions to inflation (percentage points)

Food and beverage Non-food and services

Nepal-CPI India-CPI

0

1

2

3

4

5

6

7

Aug

Sep

O

ct

Nov

D

ec

Jan

Feb

M

ar

Apr

May

Jun

Jul

Aug

Sep

O

ct

Nov

D

ec

Jan

Feb

M

ar

Apr

May

Jun

Jul

Interbank rate 91-day treasury bills rate

Interest rates

FY2013 FY2014

-30

-20

-10

0

10

20

30

40

50

60

70

M2 Net foreign

assets

Net domestic

assets

Credit to

private sector

Net claims on

Government

Monetary sector (% change)

FY2012 FY2013 FY2014

0

200

400

600

800

1000

1200

NEPSE index (closing) Market capitalization (Rs.

billion)

Number of listed

companies

Stock market performance

FY2012 FY2013 FY2014


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External Sector

-60

-40

-20

0

20

40

60

FY2010 FY2011 FY2012 FY2013 FY2014

Balance of payments (% of GDP)

Export (fob) Import (cif)

Net services balance Net income balance

Net transfers Capital account

Financial account CABBOP

0

5

10

15

20

25

30

0

100,000

200,000

300,000

400,000

500,000

600,000

Remittances(%o

fGDP)

Migration and remittances

Overseas migrants Workers' remittances (% of GDP)

60

65

70

75

80

85

90

95

100

105

110

1-Jan-11

18-Feb-11

7-Apr-11

25-May-11

12-Jul-11

29-Aug-11

16-Oct-11

3-Dec-11

20-Jan-12

8-Mar-12

25-Apr-12

12-Jun-12

30-Jul-12

16-Sep-12

3-Nov-12

21-Dec-12

7-Feb-13

27-Mar-13

14-May-13

1-Jul-13

17-Aug-13

4-Oct-13

21-Nov-13

8-Jan-14

25-Feb-14

14-Apr-14

1-Jun-14

19-Jul-14

Nominal exchange rate (NRs/US$)


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4.34.6

3.5

5.2

4.6

0

1

2

3

4

5

6

FY2011 FY2012 FY2013R FY2014P FY2015f

Contributions to GDP growth (percentage points)

Agriculture Industry

Services GDP growth (basic prices)

9.6

9.6

8.3

9.9

9.19.5

0

2

4

6

8

10

12

FY2010 FY2011 FY2012 FY2013 FY2014 FY2015f

Contributions to inflation (percentage points)

Food and beverage Non-food and services

Nepal-CPI India-CPI

GDP growth (basic prices)

Estimated to grow by 4.6% Lower agricultural output

Improvement in industrial sector growth

Sustained services sector growth

Inflation

Inflation to remain elevated at 9.5% Lower agricultural harvest

Rise in administered fuel prices & transport cost

Increase in public sector salary & allowance

Disruptions in domestic distribution system due

to natural disasters


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Mainstreaming Environment for Growth and Poverty

Reduction


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1. A need for high, inclusive and sustainable growth

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0 CO2 emissions (metric tons per capita) One of the major challenges is to

not only achieve high and inclusiveeconomic growth, but also to

ensure that it is environmentally

sustainable.

Economic activities without due

consideration for environmental

sustainability may start tapering offin the medium-term, undermining

prosperity in the long run.

Nepals GDP growth pattern has so far been minimally damaging to the environment as

the industrial sectors contribution to growth is relatively low. But, what when the industrialsector comes out of currently shrinking and hibernating state?

Climate change-driven events like melting glaciers pose a grave risk to Nepals economy,

and could cause losses equal to almost 2.2% of annual GDP by 2050 and 9.9% by 2100.

But, if mitigation and adaptation steps are taken the damage could be limited to around

2.4% of GDP by 2100.


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2. State of the Environment: Brief Overview

43.8

42.8

42.2

39.538.9

37.3

34

36

38

40

42

44

46

1965 1978 1985 1994 2011 2013

Total forest area as % of total land

0

0.5

1

1.5

2

2.53

3.5

4

4.5

Mountain

Hill

Tarai

Eastern

Central

Western

Midwestern

Farwestern

Nepal

Ecological belt Development region All

Uncultivable land due to flooding /soil erosion (% oftotal land

2001

2012

0

1020

30

40506070

8090 Noise level in Kathmandu (dBA), June 2013

Day Night WHO guideline

0

50

100

150

200

250

300

350 Annual mean concentration of particulate matter(PM2.5 and PM10)

PM2.5 PM10 WHO-PM2.5 WHO-PM10


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Weak environmental monitoring and enforcement and increase innoncompliance due to fluid political situation and gaps in governance

Un-harmonized and old policy, act and regulation. Needs to coveremerging issues

Unabated land use change, deforestation, natural resource exploitation,watershed degradation and loss of biodiversity

Updates required in design standards of major infrastructure to makethem suitable to the fragile geology, environment and climate resilient

Unplanned, unregulated urbanization with land, air and water pollution.Dying rivers. Encroachment in space and heritage. Increasingvulnerabilities

Misuse of pesticides and agrochemicals

Lack of SEA and cumulative impact assessment in key policy and masterplan preparations

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3. Key Challenges Related to Boosting Economic Activities


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The current safeguards priorities of the government:

Conserve forest and biodiversity with community participation

Reduce CC and disaster vulnerability

Prepare disaster early warning systems, prepare relief program,and ensure post disaster management

Ensure environmental sustainability and green growth

Improve urban environment

Promote renewable and energy efficient technologies

Watershed managementecological restoration in fragile hillyareas

Approach for payments for environmental services and carbonsequestration

2014-09-07 15

4. Governments Strategy


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Some of the major recommendations to stimulate environment-friendlyinclusive economic growth are:

Strengthen the country safeguards system

Update design standards for environment friendly and climate smartinfrastructure development

Institutional strengthening by restructuring organizational structure on safeguards

Promote planned, regionally balanced, regulated, green and disaster resilient

urban centers

Promote for climate risk adaptation and implement climate resilient infrastructure

Reverse the process of land degradation

Prepare climate resilient economy by focusing on agriculture, industry andinfrastructure

Protect ecosystem and biodiversity (terrestrial and aquatic) and ensure paymentfor ecosystem services

Mainstream climate change and DRM risks in all plan and program

Scale up renewable and alternative energy

Establish effective disaster risk management (DRM) at policy and institutionallevel and remain prepared for pre, emergency relief, and post disaster response

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5. Recommendations


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Thank You!

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