Nepal’s economy will grow at a rate of 4.6 percent in 2012, and the figure is expected to hover around 5.2 percent in the following three years, according to Nepal Economic Outlook 2012, released by the Institute for Integrated Development Studies (IIDS) on Monday.
IIDS forecasts a country’s economic growth rate based on various macroeconomic variables, and explains major issues affecting the country’s economic growth and suggests policy recommendations.
The study points out that a declining capital expenditure has greatly affected creation of key infrastructure and that inadequate infrastructure has severely affected Nepal’s development process, resulting in lower economic growth.
The report attempts to project various macroeconomic possibilities considering different level of capital and recurrent expenditure. In order to do so, it has designed a macroeconomic model — Nepal Economic Outlook Model (NEOM) — following classical ordinary least square method of regression analysis. Using NEOM, the report has projected different scenarios of economic growth under three simulations.
In first scenario, whereby the capital and recurrent expenditure increases by the existing 8 and 18 percent, respectively, NEOM forecasts economic growth of 4.6 percent in 2012 and 4.3 percent in the current three years plan (TYP). Likewise, the economy is expected to grow by 5.2 percent in the following three years.
As per the second scenario, whereby growth of government capital expenditure increases from 8 percent to 15 percent and growth of recurrent expenditure decreases from 18 percent to 10 percent, NEOM forecasts that economic growth stands at 5.1 percent next year and 4.6 percent in current TYP. Over the next three years, the country will attain an economic growth of 5.7 percent under the aforementioned assumptions.
Under the third scenario, whereby the growth of government capital expenditure decreases from the existing 8 percent to 5 percent and the growth of government recurrent expenditure increases from 18 percent to 20 percent, simulation results portray that the economic growth will stand at 4.3 percent in 2012 and 4.2 in current TYP. Likewise, the economy is expected to grow at 4.9 percent from 2013 to 2015.
The report suggests that the government invest heavily in infrastructure, education, health care and other basic amenities for economic growth and development. “Lack of affordable and reliable electricity supply and poor transport network has contracted the country’s economic growth prospects,” reads the report.
Making an independent comment over the report, Bishwamber Pyakurel, senior economist, agreed to the various projections made by the report under different scenarios. He, however, criticised that report for being limited to diagnostic study and for missing different policy implications. Mohan Man Sainju, chairman of IIDS, said more productive investment is required to simulate the country’s economic growth and development.