Identifier
Created
Classification
Origin
06KATHMANDU1906
2006-07-17 12:29:00
CONFIDENTIAL
Embassy Kathmandu
Cable title:  

NEPAL'S ECONOMIC SURVEY DEPICTS DISMAL ECONOMY

Tags:  ECON EAID EFIN NP 
pdf how-to read a cable
VZCZCXYZ0000
OO RUEHWEB

DE RUEHKT #1906/01 1981229
ZNY CCCCC ZZH
O 171229Z JUL 06
FM AMEMBASSY KATHMANDU
TO RUEHC/SECSTATE WASHDC IMMEDIATE 2378
INFO RUEHBJ/AMEMBASSY BEIJING PRIORITY 4587
RUEHLM/AMEMBASSY COLOMBO PRIORITY 4841
RUEHKA/AMEMBASSY DHAKA PRIORITY 9957
RUEHIL/AMEMBASSY ISLAMABAD PRIORITY 2828
RUEHLO/AMEMBASSY LONDON PRIORITY 4238
RUEHML/AMEMBASSY MANILA PRIORITY 1702
RUEHNE/AMEMBASSY NEW DELHI PRIORITY 0003
RUEAIIA/CIA WASHDC PRIORITY
RHEFDIA/DIA WASHDC PRIORITY
RHEHNSC/NSC WASHDC PRIORITY
RUEKJCS/SECDEF WASHDC PRIORITY
RHHMUNA/CDR USPACOM HONOLULU HI PRIORITY
C O N F I D E N T I A L KATHMANDU 001906 

SIPDIS

SIPDIS

MANILA FOR PSPELTZ

E.O. 12958: DECL: 07/17/2016
TAGS: ECON EAID EFIN NP
SUBJECT: NEPAL'S ECONOMIC SURVEY DEPICTS DISMAL ECONOMY

REF: KATHMANDU 1688

Classified By: Charge d'Affaires Nicholas Dean. Reasons 1.4 (b/d).

SUMMARY
-------

C O N F I D E N T I A L KATHMANDU 001906

SIPDIS

SIPDIS

MANILA FOR PSPELTZ

E.O. 12958: DECL: 07/17/2016
TAGS: ECON EAID EFIN NP
SUBJECT: NEPAL'S ECONOMIC SURVEY DEPICTS DISMAL ECONOMY

REF: KATHMANDU 1688

Classified By: Charge d'Affaires Nicholas Dean. Reasons 1.4 (b/d).

SUMMARY
--------------


1. (C) Finance Minister Ram Sharan Mahat recently presented
to Parliament Nepal's annual Economic Survey Report for
Fiscal Year (FY) 2005-2006, which highlighted decreases in
Gross Domestic Product (GDP) and the agricultural sector and
a rise in inflation. A nominal increase in per capita income
was due to foreign remittances. The report states that in FY
2005/06 the number of schools decreased, only 18 kilometers
of new roads were built, and no power generation capacity was
added. The report also noted the slow pace of development
spending over the first eight months of the year, which some
experts say will not look as bad once the final fourth
quarter figures are received. End Summary.

ECONOMIC PERFORMANCE UNSATISFACTORY
--------------


2. (U) On July 11, Finance Minister Ram Saran Mahat presented
Nepal's Economic Survey Report for FY 2005/06 to Parliament.
(Note: Nepal's fiscal year runs from July 15 through July

14. End Note.) The report depicts the dire state of the
country's strife-torn economy. According to the report,
Nepal's GDP is expected to grow by only 1.9 percent in FY
2005/06, compared to 2.7 percent in FY 2004/05. The survey
shows that per capita income increased by USD 20 in FY
2005/06 to USD 322. This nominal growth in per capita income
can be attributed to the approximately USD 1 billion in
foreign remittances pumped into the economy last year. The
rate of inflation was more than 8 percent, compared to 4.6
percent in FY 2004/05.


3. (C) According to Bishwambher Pyakuryal, President of Nepal
Economic Association and a Professor of Economics, in the
last four consecutive years of the Tenth Five-year Plan
(2002-07),the average economic growth rate was below 3
percent. He said that in the tenth plan period, the
projected growth rate of the economy was 4.5 to 6.2 percent.
Pyakuryal noted that the performance of Nepal's economy was
quite disappointing even compared to the lower end of the
projected growth rate.

AGRICULTURE SECTOR GROWTH SLOWS
--------------


4. (C) The agriculture sector, which is the mainstay of the
Nepalese economy and contributes roughly 40 percent of GDP
and 76 percent of employment, grew only 1.7 percent, compared
to 3 percent in FY 2004/05. The growth in the agriculture
sector was less than the average growth in population, which
was 2.2 percent, and according to Pyakuryal, is indicative of
poor agricultural planning by the government. Roshan
Bajracharya, Senior Economist at the World Bank, explained
that a country that gets 40 percent of its GDP from the
agriculture sector will always find problems in its economic
development. All other financial sectors combined, however,
improved marginally to 2.8 percent growth, compared to 2.1
percent in FY 2004/05, but remained much below growth made in
previous years.

SOCIAL SECTOR BEARS THE BRUNT OF MAOIST CONFLICT
-------------- ---


5. (SBU) The Economic Survey Report shows dismal progress in
the social sector in FY 2005/06. The Maoist insurgency,
coupled with a volatile political situation, took a heavy
toll on the social sector. According to the report, the
number of schools decreased by six percent and no new
hospitals came into operation during the year. Development
of infrastructure such as roads and power-generation plants
was almost non-existent in FY 2005/06. The government built
only 18 kilometers of new roads, and did not add even one
megawatt of power generation to the existing capacity.
MIXED VIEWS ON DEVELOPMENT SPENDING
--------------


6. (C) Shankar Sharma, Former Vice Chairman of the National
Planning Commission, noted that, while the growth rate of the
economy was unsatisfactory, the report only covered
development work done in the first eight months of the fiscal
year. Sharma explained that the government normally did most
of its development spending in the fourth quarter of the
fiscal year. He opined that the situation would not look as
bad as it appeared from the figures available at this stage
(reftel). However, Bajracharya stressed that the lack of
resolve on the part of political leaders and the slow moving
attitude of the bureaucracy increasingly caused low release
and allocation of development funds.

COMMENT
--------------


7. (C) The new government is plagued by the twin challenges
of trying to create a new democratic Nepal and putting the
battered economy back on track. The lack of sufficient
financial resources to kick-start economic activity continues
to be a major snag for future economic growth. Additionally,
the government needs to take steps to boost investor
confidence in Nepal.
DEAN