Rs.112 Kharba Investment Needed to Grow Nepal’s GDP to Rs.103 Kharba by 2085/86
June 9, 2024 | Investopaper
The Sixteenth Five-Year Plan (Fiscal Year 2081/82–2085/86) projects that approximately Rs. 112 Kharba in investment will be needed to grow the country’s economy to around Rs. 103 Kharba within the next five years.
For the current fiscal year 2080/81, the country’s Gross Domestic Product (GDP) is estimated to reach Rs. 57.05 Kharba at consumer prices. If the growth targets set by the Sixteenth Five-Year Plan are achieved, the GDP will exceed Rs. 100 Kharba by the final year of the plan. By fiscal year 2085/86, GDP is expected to reach Rs. 80.19 Kharba in the previous year’s prices and Rs. 103.07 Kharba at current prices.
To achieve this goal, the investment required will surpass the GDP itself. The plan estimates that to achieve an average economic growth rate of 7.1 percent at basic prices, a total fixed capital investment of Rs. 94.82 Kharba will be necessary at the value of 2080/81. When adjusted to current prices, the total required investment during the plan period is projected to be Rs. 111.84 Kharba.
For the next five years, the investment in the agricultural sector is estimated at Rs. 6.68 Kharba, while the non-agricultural sector is expected to see an investment of Rs. 88.14 Kharba. The plan aims to mobilize investments from government, private, and cooperative sectors to achieve the projected economic growth.
During the plan’s implementation, public sector investment is expected to be Rs. 28.63 Kharba, private sector investment Rs. 63.72 Kharba, and cooperative and community sector investment Rs. 2.46 Kharba, all based on current prices. In current value terms, these investments are projected to be Rs. 33.77 Kharba from the public sector, Rs. 75.15 Kharba from the private sector, and Rs. 2.90 Kharba from the cooperative sector. This would mean 30.2 percent of the total investment from the public sector, 67.2 percent from the private sector, and 2.6 percent from the cooperative sector.
Over the next five years, the value addition from the primary sector is projected at Rs. 15.16 Kharba, the secondary sector at Rs. 10.81 Kharba, and the tertiary sector at Rs. 45.03 Kharba, totaling Rs. 71.01 Kharba. The inflation rate during this period is expected to be maintained between 5 percent and percent.
The plan outlines various traditional and alternative funding sources to meet the required investment. Traditional sources include government revenue, foreign aid, public debt, and private sector capital. Alternative sources involve direct foreign investment, public-private partnerships, mixed investments, project development bonds, income from natural resources, green finance, climate finance, carbon tax, and funds from various public institutions.
Over the next five years, the government is projected to spend Rs. 120.63 Kharba. This includes Rs. 45.71 Kharba in current expenditure, Rs. 27.71 Kharba in capital expenditure, Rs. 22.57 Kharba in financial arrangements, and Rs. 24.62 Kharba in financial transfers to provinces and local levels. The federal revenue is expected to contribute Rs. 84.65 Kharba to cover these expenses.
Additionally, a total of Rs. 95.30 Kharba in revenue distribution among three levels of government is projected. Foreign aid during the plan period is estimated at Rs. 17.52Kharba. The projected shortfall, Rs. 18.42 Kharba, is expected to be covered through domestic borrowing.
Significant structural changes in the economy are anticipated due to high value addition in the industrial and service sectors. By the end of the plan, the primary sector’s contribution to GDP is expected to drop from 24.6 percent to 21.4 percent, the secondary sector’s contribution to increase from 12.5 percent to 15.2 percent, and the service sector’s contribution to rise from 62.9 percent to 63.4 percent. This indicates a shift from agriculture to industry and services.
If the economic growth targets are met, per capita income in Nepal will see a significant rise. By the end of the plan, per capita GDP is expected to reach Rs. 331,000, equivalent to USD 2,319. The per capita income for fiscal year 2085/86 is projected to be USD 2,351, compared to the current USD 1,456.
The government aims to encourage savings and reduce unnecessary consumption, increasing gross fixed capital formation significantly. By the final year of the plan, the ratio of final consumption expenditure to GDP is projected to be 91.5 percent, and gross national savings are expected to be 39 percent of GDP. Gross fixed capital formation is projected to be 28.6 percent of GDP, with the public sector contributing 30.2 percent and the private and cooperative sectors contributing 69.8 percent.
