In a recently released report, the Central Bureau of Statistics (CBS) estimated that the country’s per capita income would cross $1,000 mark for the very first time. CBS—the central agency for the collection, consolidation, processing, analysis, publication and dissemination of statistics—also started the first-ever national economic census this month. Nepal’s per capita income, says the CBS, will reach $1,012 in the current fiscal 2017-18 that ends mid-July. Considering the bleak economic picture of the country that was pained in finance minister Yubaraj Khatiwada’s white-paper last month, this is a welcome news. It could help the country achieve its goal of upgrading its status from a ‘least developed country’ to a ‘developing country’ by 2022. According to the CBS, the rise in economic activities including in construction and mining, as well as a robust service sector, helped expand the economy, which ultimately reflected in the higher per capita income.
In order to get the developing country status, a least developed country should meet at least two of the three criteria set by the United Nations related to per capita income, human asset index and economic vulnerability index. A country needs to have a per capita income of $1,242 or more to be called a developing country, provided the other two criteria are also met.
But considering all the factors that are pulling down the economy, is the estimated income growth of $135 (or 15.39 percent) from last fiscal’s $877 sustainable?
The projected economic growth for the current fiscal is 5.89 percent, which is healthy enough. Yet, at the same time, the outflow of funds from the country exceeded inflows by Rs 24.7 billion in the first eight months of the current fiscal (mid-July to mid- March), increasing the trade deficit by over 23 percent. Meanwhile, the balance of payments (BoP) deficit of Rs 24.7 billion recorded in that period has exerted pressure on foreign exchange reserves. In the month of March, the reserves fell by 3.4 percent, to $10.1 billion, according to the Nepal Rastra Bank.
Nor is the trade situation any better. Nepal’s foreign income has not been able to meet expenses as imports have far exceeded exports, resulting in whopping Rs 713.9 billion trade deficit (27 percent of the GDP) in the first eight months of the current fiscal.
Economist Chandan Sapkota calls the increase in per capita income positive, which, he says, owes to the rapid growth in nominal GDP. But when asked if the real GDP growth in the past few years is sustainable, Sapkota says, “The growth rates of recent times are the result of increased government spending on reconstruction and growth in both demand and supply of construction materials. But unless there are fundamental changes in the economy, this might not be sustainable.”
Another temporary stimulus that boosted the economy was the elections, Sapkota says. The government spent a huge amount in election administration and security personnel, which led to the injection of new cash into the economy and temporarily increased employment. Per capita income increased too.
“But we have to keep up the momentum.” Sapkota says. “There’s not always going to be post-earthquake reconstruction and elections.”
In his view, the only way the high economic and income growth witnessed this year will be sustained is if a more favorable environment is created for private and foreign investors and if the budget is disbursed more systematically.