Lower agriculture production – due to subnormal monsoon season, and also flood – is expected to bring the economic growth down.

“The possibility of lower agricultural output is is most likely to pull down GDP growth rate forcing the consumer prices to go up,” Asian Development Bank’s (ADB) Macroeconomic Update published today reported.

The economy, according to the ADB report, is expected to expand by only 4.6 per cent in the current fiscal year 2014-15, though the government has projected six per cent GDP growth.

The economic growth rate seemed less optimistic than last fiscal year 2013-14, when the country witnessed 5.2 per cent growth.

As agriculture contributes to over 30 per cent to gross domestic product (GDP), the lower agriculture output will bring the GDP down. But service sector – another major contributor – to the economy, could help propel economic growth a little bit, it added.

The lower agricultural production will also put pressure on food prices, which could encourage hoarding of major food products, creating additional pressures and further heightening inflationary expectations, the ADB report stated.

The ADB also projected consumer prices to go up by 9.5 per cent in the current fiscal year against the government’s forecast of eight per cent.

The rise in inflation is attributed to potential rise in administered fuel prices and transport cost, increase in public sector salary and allowance for two consecutive years, and disruptions in domestic distribution systems due to result of natural disasters and strikes.

However, ADB has predicted better performance of the industrial sector in the current fiscal year, due to ‘gradual improvements in the political environment and the resurgence of investor confidence following the government’s commitment to unveil second generation reforms to stimulate private investments’.

The industrial sector has been not performing better since last one decade due to political instability and labour-management dispute. Likewise, the improved private sector confidence will not only help industrial sector’s growth but also expedite capital expenditure, the report hoped.

Nepal is facing a infrastructure deficit for the country’s graduation from the current Least Developed Country (LDC) group to developing country group by 2022, the report said, advising the country for result-oriented and qualitative increment in the capital spending and social development for inclusive economic growth.

The capital investment was very slow, at 3.2 percent of GDP, in the last fiscal year, it said, adding that the government must invest at least 12 per cent of GDP, to meet the 2022 deadline for graduation. The country should increase investment in not only physical infrastructure but also in human capital to achieve its medium term goal, apart from developing energy sector that is vital to transform the economy.

The high and sustained economic development would be necessary for poverty reduction and creating productive employment, the multilateral donor said.

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