Major sectors of Nepal economy hit hard by quake

Published on May 11, 2015 21:39:11 PM

Though the damage wrought to Nepal's small but struggling economy by the April 25 devastating earthquake is yet to be quantified.

Officials and experts say that all major sectors of the Himalayan nation's economy like agriculture, tourism, services and industry have been badly affected.

The total loss from the quake is now being assessed by the Central Bureau of Statistics.

Initial estimates suggest that the losses could go over a billion dollars and it would take years to heal the shattered economy.

With the economy being worst affected by the devastating quake, the projected 5-6 percent annual growth for this fiscal is unlikely to be met.

The government admitted that the GDP growth target for this fiscal will be hard to achieve, with Finance Minister Ram Sharan Mahat stating on Friday that the projected economic growth would be impossible to meet.

"The earthquake has affected all sectors, including tourism, industry and agriculture," said Mahat.

Economists said the quake has badly hit sectors like tourism, banking and real estate. Although the services sector's direct and indirect contribution was only about 9 percent to gross domestic product (GDP) in fiscal year 2013-14, it is one of the fastest-growing sectors and has significant backward and forward linkages in terms of employment and production.

Lending activities of the banking sector have suffered due to the closure of financial institutions for some time, and real estate developers will struggle to regain people's faith.

"Services sector components like real estate, banking and tourism are likely to witness negative or slow growth," said Min Bahadur Shrestha, chief of research department at the Nepal Rastra Bank (NRB), the central bank of Nepal.

"As spending will rise in the areas of health, education and welfare activities, these sectors will see growth."

The only assessment done so far of the economic losses is by the Asian Development Bank (ADB). In its initial analysis of the impact of the quake on the economy, ADB has estimated that the growth rate will decline to 4.2 percent from its estimate of 4.6 percent made in March.

"If the supply-side disruptions intensify in the coming weeks, the growth forecast may be further downgraded to somewhere between 3 percent and 3.5 percent," states ADB.

Economists said that though the quake has damaged the economy massively, its impact on the GDP growth would be minimal for this fiscal year because most of the production has already taken place in the first nine months of the current fiscal year before the quake hit the country. Nepal's financial year runs from 16 July to 15 July.

Economist Shankar Sharma calculates that the quake might have damaged property worth 30-35 percent of the gross domestic product (GDP). The country's GDP is around worth Nepali Rs.2 trillion ($19.5 million).

He, however, argued that much has been already produced and lower production after quake would not have much of an impact.

"I expect the downturn in GDP growth by one percentage point this year, particularly due to its impact on the service sector, slowdown in the government's construction activities and a little bit of impact on the manufacturing sector," said Sharma, who is a former vice-chairman of the National Planning Commission (NPC).

Former finance secretary Rameshore Khanal said the quake would not bring down growth this year.

"My calculation is it will bring down the growth rate by 0.2 to 0.3 percentage points," he said.

Khanal does not see much impact on growth because most of the key agriculture products such as paddy, wheat and maize have already been harvested.

"It can affect vegetable production and livestock whose impact won't be big enough," he said.

However, they say that as most of the people from quake-affected districts outside the Kathmandu Valley are dependent on agriculture for their livelihood, its impact would be seen on their livelihood opportunities.

The economists, however, said the growth would revive from the next fiscal year as the rebuilding process moves ahead with growing demand for construction materials and labour.

The government has announced the setting up of a Nepali Rs 200-billion reconstruction fund and plans for reconstruction of all damaged government and private buildings as well as historical monuments within the next five years.

However, Khanal said the prospect of growth in the upcoming years would depend on how swiftly the reconstruction process moves ahead.

"There is need for a central nodal agency with quick decision-making power to take ahead the reconstruction activities," he said.