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Nepal’s Economy to Stabilize on Buoyant Domestic Demand

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Nepal’s economy is anticipated to grow at 6.2% in fiscal year (FY) 2019 and 6.3% in FY2020, says the latest Asian Development Bank (ADB) Nepal Macroeconomic Update.

“The outlook is for a stable growth on the back of strong domestic demand, fueled by a larger budget allocation to subnational governments and accelerated post-earthquake reconstruction,” said ADB Country Director for Nepal Mr. Mukhtor Khamudkhanov. “Challenges to smooth implementation of fiscal federalism and maintaining fiscal discipline at large could pose potential risks to the outlook. Nepal has the potential to achieve and sustain higher growth rate over a long period of time if these challenges are addressed.”

The agriculture sector will likely grow from 2.8% in FY2018 to 4.5% in FY2019, owing to a good monsoon that is expected to boost paddy production to 5.5 million tons, a rise of 8.4% from the previous year. The industry sector is expected to expand by 7.1% in FY2019 buoyed by improved electricity supply and efforts to improve the investment climate. And the services sector will likely grow by 6.4% in FY2019 with the expansion of wholesale and retail trade, hotels and restaurants, and financial intermediation.

The update says inflation is projected to rise to 4.4% in FY2019 from 4.2% in FY2018, partly reflecting somewhat higher inflation expected in India, stable oil prices, and higher government expenditures under the new federal structure.

Revenue collection has primarily increased on higher import growth and an improvement of the tax system. The budget as of mid-January 2019 is in surplus by NRs173.3 billion owing to strong revenue growth and a marginal slowdown in recurrent expenses. Though capital expenditure has surged in the fiscal year through mid-February, its execution stands at only 22.5%. This could again lead to a spending spree in the last month of the fiscal year, undermining the quality of capital projects, says the update.

With rising trade and current account deficit, Nepal increasingly faces the risk of external sector instability. Data to mid-February 2019 show that trade deficit has surpassed net invisible earnings, widening the current account deficit to $1.5 billion, marginally up from a deficit of $1.4 billion in the year earlier period. The current account deficit is projected to widen further to 9.3% of gross domestic product in FY2019, up from 8.2% a year earlier on increased imports of capital and consumer goods and services, notwithstanding a healthy growth of remittances and stable oil prices, says the update.

“Given the growing importance of the services sector in Nepal’s economy, coherent actions are needed to bridge trade deficit via export diversification in the services sector,” said ADB Economist for Nepal Mr. Manbar S. Khadka. “A host of issues pertaining to infrastructural, institutional, and procedural barriers need to be addressed to promote the services sector.”

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Energy News

IEA holds Energy Efficiency Training Week in Paris

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Dr Fatih Birol, the IEA's Executive Director (second from right), kicked off the event by stressing the importance of energy efficiency as the first fuel. Photo: IEA

The International Energy Agency is hosting its 11th Energy Efficiency in Emerging Economies Training Week from 20 to 24 May. More than 120 energy efficiency professionals from 40 countries have come together in Paris for the event.

The objective of the training week is to enable participants to learn from leading experts in the field and from each other, strengthening the knowledge and networks needed to meet some of today’s most pressing challenges. The weeklong activities focus on the critical role of energy efficiency in mitigating growing energy demand across all sectors in the world’s fastest‑growing economies.

Dr Fatih Birol, the IEA’s Executive Director, kicked off the event by stressing the importance of energy efficiency as the first fuel. “Many of the challenges the world is facing today – climate change, energy security, access to electricity – can be met at a large scale only by implementing the right energy efficiency policies,” he said.

Ambassadors from Brazil, Switzerland and the United Kingdom joined Dr Birol in the open plenary session to share their experiences and support for the training week. His Excellency, Mr. Carlos Márcio Cozendey, Ambassador and Delegate of Brazil to International Economic Organisations in Paris, commended the opportunity that the training week presents. “Energy efficiency will remain very important in Brazil, and international cooperation through the IEA and bilateral cooperation with different countries will be an important part of that,” he said.

Participants are engaged in one of five parallel courses, which focus on energy efficiency in buildings, industry, appliances and equipment, cities, and indicators and evaluation. Experts from the IEA are guiding participants through an interactive agenda, with lectures, discussions, practical exercises, site visits and group activities.

The IEA will host its first Energy Efficiency Training Week for Africa later this year and a specialised training programme on green buildings in Singapore from 16 to 18 July. Please keep an eye on our website for registration opening dates.

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EU Politics

Aviation Strategy for Europe: Commission signs landmark aviation agreements with China

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The European Union and China have today signed an agreement on civil aviation safety and a horizontal aviation agreement to strengthen their aviation cooperation.

The agreements follow up on the EU-China Summit of 9 April and will serve to boost the competitiveness of the EU’s aeronautical sector and enhance overall EU-China aviation relations. This marks yet another key deliverable under the Juncker Commission’s Aviation Strategy for Europe – designed to generate growth for European business, foster innovation and let passengers profit from safer, cleaner and cheaper flights.

European Commission President Jean-Claude Juncker said: “In an increasingly unsettled world, Europe’s partnership with China is more important than ever before. The EU firmly believes that nations working together makes the world a stronger, safer and more prosperous place for all. Today we took a first big step in this direction by signing two aviation agreements with China that will create jobs, boost growth and bring our continents and peoples closer together. Today’s agreements show the potential of our partnership and we should continue on this path of cooperation. For it will always be in unity that we find strength.”

Commissioner for Transport Violeta Bulc said: “China is one of the European Union’s most important strategic partners and we attach a lot of importance to our excellent relations on transport matters. We are mutually interested in better connecting Europe and Asia and making it easier to move goods, services and people between Europe and China. That applies to aviation, too. Today’s agreements will boost the European Union’s trade in aircraft and related products, and ensure the highest levels of air safety.

The main objective of the bilateral civil aviation safety agreement (BASA) is to support worldwide trade in aircraft and related products. This agreement will remove the unnecessary duplication of evaluation and certification activities for aeronautical products by the civil aviation authorities, and therefore reduce costs for the aviation sector. The BASA will also promote cooperation between the EU and China towards a high level of civil aviation safety and environmental compatibility.

The second agreement signed today is a so-called horizontal aviation agreement. It marks China’s recognition of the principle of EU designation, whereby all EU airlines will be able to fly to China from any EU Member State with a bilateral air services agreement with China under which unused traffic rights are available. Up until now, only airlines owned and controlled by a given Member State or its nationals could fly between that Member State and China. The conclusion of a horizontal agreement will thereby bring bilateral air services agreements between China and EU Member States into conformity with EU law – a renewed legal certainty which will be beneficial to airlines on both sides.

Next steps

Both the European Commission and the Chinese transport administration will now proceed with their respective internal procedures to put the conclusion of the agreement in place.

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Environment

World Bank to Strengthen Human Capital and Climate Resilience in Haiti

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The World Bank’s Board of Executive Directors approved today three projects for a total amount of US$162 million in grants to improve the quality of health and education services and strengthen climate resilience in Haiti.

“These three projects address key national priorities to build a better future for all Haitians,” said Anabela Abreu, World Bank Haiti Country Director. “Access to quality healthcare and education are crucial to break the cycle of poverty and to build a stronger human capital so that Haitian children can reach their full potential. The Bank support will also help build climate resilience in the face of the growing threat of natural hazards by strengthening early warning systems and disaster preparedness in high climate risk areas.”

Globally, Haiti ranks 112th on the World Bank Human Capital Index. A child born today in Haiti will be only 45 percent as productive when she grows up as she could be if she had enjoyed full health and education. Infant mortality in Haiti remains high with 59 death per 1,000 live births and maternal mortality has increased from an estimated 523 per 100,000 live births in 2005 to 646 per 100,000 live births in 2016. Only 40 percent of children are fully vaccinated, which has contributed to outbreaks of preventable diseases such as cholera, diphtheria, and measles.

Similarly, the education outcomes are not very promising. On average Haitian children attend 11.4 years of school by age 18, which is equivalent of 6.3 years of adjusted learning and is the lowest score in the region. In terms of disaster risks, Haiti is highly exposed to hurricanes, floods and earthquakes. Between 1976 and 2012, losses associated with hydro-meteorological events alone were equivalent to almost two percent of annual GDP on average. In 2016, Hurricane Matthew affected over two million people, resulting in over 500 deaths and displaced 175,000 people.

The “Strengthening Primary Health Care and Surveillance in Haiti” project will significantly enhance basic healthcare services for three million people, particularly for pregnant women and children in the South, North West, North-East, Center and Nippes departments. It will strengthen nationwide surveillance capacity and immunization for infectious diseases. The project will also improve the overall coordination among government and international partners in the health sector. The US$70 million project is financed by a US$55 million grant from International Development Association (IDA) and a US$15 million grant from the Global Financing Facility.

The second approved grant for the “Providing an Education of Quality in Haiti” project is to increase enrollment and improve the school learning condition in public and private primary schools in the Southern departments of Haiti. The project will particularly focus on closing the gender gaps in attendance and retention rates.  The support is provided as an additional financing of US$57 million, including a US$39 million grant from IDA and a US$18 million grant from the Global Affairs Canada.

The third project “Strengthening Disaster Risk Management and Climate Resilience” will support the design of a national early warning system and improve emergency response and evacuation capacity of targeted municipalities in high climate risk-prone areas. It will also reinforce infrastructure such as schools and community centers to serve as emergency shelters, provide technical training, and support for strengthening the building codes. The project is financed by a US$35 million grant from IDA.

The International Development Association (IDA) is the World Bank institution that provides low-interest or interest-free grants and loans to the world’s poorest countries to help them implement projects and programs that stimulate economic growth, contribute to the reduction of poverty and improve the living conditions of the poor.

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