International Monetary Fund has warned that the Nepal's economic outlook in fiscal year 2012/13 will be more challenging compared to previous fiscal year 2011/12. The report prepared by IMF after completing the Article IV consultation in Nepal has highlighted the challenges that the economy will be facing in the current fiscal year. As it highlights that the gross domestic product (GDP) growth is estimated to go down at 38 percent in this fiscal year which was maintained at 4.6 percent in the fiscal year 2011/12.
Here are the major challenges that the IMF has showcased for Nepali economy in the current fiscal year
- The real GDP growth is projected to decline to 3.8 percent, reflecting a weaker monsoon and slower services activity as remittance growth may slow.
- Spillover effects from declining growth in India (through lower export demand, weaker inward investment and possibly less remittance) and the dampening effect of continued political uncertainty will also present further challenges to growth in Nepal.
- Inflation is also in rise, and upward pressure on prices may increase in line with projected developments in India over the next few months.
The 2012 article IV consultation has focused on managing the downside macroeconomic risks and financial sector vulnerabilities. The IMF has suggested various recommendations to the government of Nepal to take. The recommendations of the IMF are as follows:
- To secure macroeconomic stability and to foster sustainability and inclusive growth, IMF emphasized continued commitment to sound policies and structural reforms, particularly in the financial sector.
- There should be continued fiscal prudence, consistent with the objective of keeping public debt roughly constant over the medium term.
- Act expeditiously to pass a full-year budget for 2012/13 and to strengthen public financial management to ensure full execution of the capital budget.
- Address the quasi-fiscal liabilities arising from financial losses at Nepal Oil Corporation and Nepal Electricity Authority.
- Need for targeted and well sequenced acceleration of financial sector reforms, including the amendment of Nepal Rastra Bank Act to improve the governance of the financial sector and broadened prompt corrective action framework.
