Nepal’s economic growth will remain strong at 6.3% in fiscal year (FY) 2020, according to the Asian Development Bank’s (ADB) Nepal Macroeconomic Update released today. The country’s economy can expand further if the execution of public capital expenditures, including at sub-national levels, improves substantially and private investment remains strong, according to the report.
“Near normal monsoon this fiscal year, efforts to accelerate the implementation of large infrastructure projects, and increase in tourist arrivals will support high growth,” said ADB Country Director for Nepal Mr. Mukhtor Khamudkhanov.
The floods in early July damaged paddy saplings in many parts of the country, which could lower agriculture growth compared with FY2019 figures. The industry sector is expected to expand by 7.9% in FY2020, buoyed by improved electricity supply and efforts to improve investment, including in major infrastructure. The services sector will likely grow by 6.9% in FY2020 with the expansion of wholesale and retail trade, financial intermediation, and travel and tourism subsectors.
The update says inflation is projected to rise to 5.5% in FY2020 from 4.6% in FY2019, assuming a somewhat smaller harvest, a marked pickup in government expenditures, and a moderate rise in inflation in India, the country’s main supplier of goods and services.
Nepal’s fiscal deficit moderated to 5.1% of gross domestic product (GDP) in FY2019, down from 6.7% of GDP in FY2018 on lower-than-planned capital expenditures. Execution of capital expenditures at 75.9% in FY2019 was less than that of FY2018 at 81.0%. Bunching of capital expenditure continued in FY2019, undermining the quality of investment.
Nepal increasingly faces the risk of external sector instability due to large trade and current account deficits. The current account deficit moderated to 7.7% of GDP, down from 8.2% in FY2018, on implementation delays of large national pride projects and markedly curbed import growth. Merchandise export growth exceeded expectations, but with low export base, earnings remained small, widening the merchandise trade deficit by 4.4%. While remittance has shown healthy growth, a substantial rise in the near future is unlikely to offset the rise in the trade deficit.
Downside risks to outlook in FY2020 center on challenges to the smooth implementation of federalism. Adequate human resources, mainly technical staff, and capacity in the relatively new sub-national governments coupled with necessary legislative frameworks are required for the smooth implementation of federalism.
Explainer: rescEU and Humanitarian Aid under the new MFF
Why is the Commission proposing to strengthen the EU Civil Protection Mechanism and rescEU?
The EU Civil Protection Mechanism is a crisis management structure that allows Member States and Participating States to strengthen their cooperation in the field of civil protection, to improve prevention, preparedness and response to disasters. It is based on voluntary contributions of Member States, with the European Commission playing a key coordinating and co-financing role.
The need for a more flexible, faster and reactive system to respond to large-scale emergencies is one of the lessons learnt from the outbreak of the coronavirus pandemic.
The rapid spread of the virus exposed some limitations in the current crisis management framework. At times when Member States are hit by the same emergency simultaneously and unable to offer each other assistance, the EU is currently unable to help quickly enough to fill these critical gaps as it does not have its own assets and has to rely on voluntary support from Member States.
A reinforcement and upgrade of the EU Civil Protection Mechanism – as requested by the European Council in March 2020 – is therefore necessary to avoid situations where Member States are left alone during crises.
What is the main objective of the proposal?
The Commission’s proposes to allow the EU and its Member States to be better prepared for and able to react quickly and flexibly to crises, in particular those with a high-impact given the potential disruption to our economies and societies.
Under the Commission’s proposal, the EU will be able to;
- directly procure an adequate safety net of rescEU capacities;
- use its budget more flexibly to be able to prepare more effectively and react faster in times of exceptional needs
- dispose of the logistical capacity to provide multi-purpose air services in case of emergencies and to ensure timely transport and delivery of assistance;
These strategic capacities will be supplementary to those of the EU Member States. They should be strategically pre-positioned in such a way as to ensure the most effective geographic coverage in response to an emergency.
In this way, a sufficient number of strategic assets will be available in order to support Member and Participating States in situations of large-scale emergencies and offer an effective EU-response.
What kinds of action will be financed under the proposal?
The upgraded EU Civil Protection Mechanism will equip the European Union with assets and logistical infrastructure that can cater for different types of emergencies, including those with a medical emergency dimension. This would allow the EU to:
- Acquire, rent, lease and stockpile identified rescEU capacities;
- Fully finance the development and the operational cost of all rescEU capacities as a strategic European reserve in case national capacities are overwhelmed;
- Enhance the funding for national capacities deployed under the European Civil Protection Pool to increase their availability for deployment;
- Ensure timely transport and delivery of requested assistance. This also includes internationally deployable experts, technical and scientific support for all types of disasters as well as specific medical equipment and personnel such as ‘flying medical experts’, nurses and epidemiologists.
How will EU humanitarian aid be enhanced under the new MFF?
The Commission proposes €14.8 billion for humanitarian aid, of which €5 billion come from the European Union Recovery Instrument to reinforce the humanitarian aid instrument.
The increased budget reflects the growing humanitarian needs in the most vulnerable parts of the world. The Humanitarian Aid Instrument will provide needs-based delivery of EU assistance to save and preserve lives, prevent and alleviate human suffering, and safeguard the integrity and dignity of populations affected by natural hazards or man-made crises.
A significantly enhanced Solidarity and Emergency Aid Reserve will reinforce EU action in response to all aspects of the health crisis, as well as other emergencies. Funds can be channelled to provide emergency support as and when needed through EU instruments such as humanitarian aid in cases where funding under dedicated programmes proves insufficient.
Why is the Commission proposing to increase humanitarian aid budget?
Humanitarian crises in the world are increasing: In 2020, nearly 168 million people will need humanitarian assistance and protection, a significant increase from 130 million people in 2018 (OCHA humanitarian needs overview 2020). The needs are stemming from the conflicts, global refugee crisis, worsening natural disasters due to climate change.
The coronavirus pandemic further increases already existing humanitarian needs. It has a major health, social and economic impact on societies around the globe, in particular on the poorest countries. It is estimated that up to 265 million people worldwide could be under severe threat of hunger by the end of 2020 due to the effects of the pandemic (OCHA humanitarian needs overview 2020). This requires strong reinforcements to the humanitarian aid budget to meet the growing needs.
The EU adapted its humanitarian response in light of the needs stemming from the coronavirus pandemic. However, the impact of the pandemic and the economic fall-out, are compounding existing needs, making it all the more important that the Union is equipped to demonstrate solidarity with the rest of the world.
Renewables Increasingly Beat Even Cheapest Coal Competitors on Cost
Renewable power is increasingly cheaper than any new electricity capacity based on fossil fuels, a new report by the International Renewable Energy Agency (IRENA) published today finds. Renewable Power Generation Costs in 2019 shows that more than half of the renewable capacity added in 2019 achieved lower power costs than the cheapest new coal plants.
The report highlights that new renewable power generation projects now increasingly undercut existing coal-fired plants. On average, new solar photovoltaic (PV) and onshore wind power cost less than keeping many existing coal plants in operation, and auction results show this trend accelerating – reinforcing the case to phase-out coal entirely. Next year, up to 1 200 gigawatts (GW) of existing coal capacity could cost more to operate than the cost of new utility-scale solar PV, the report shows.
Replacing the costliest 500 GW of coal with solar PV and onshore wind next year would cut power system costs by up to USD 23 billion every year and reduce annual emissions by around 1.8 gigatons (Gt) of carbon dioxide (CO2), equivalent to 5% of total global CO2 emissions in 2019. It would also yield an investment stimulus of USD 940 billion, which is equal to around 1% of global GDP.
“We have reached an important turning point in the energy transition. The case for new and much of the existing coal power generation, is both environmentally and economically unjustifiable,” said Francesco La Camera, Director-General of IRENA. “Renewable energy is increasingly the cheapest source of new electricity, offering tremendous potential to stimulate the global economy and get people back to work. Renewable investments are stable, cost-effective and attractive offering consistent and predictable returns while delivering benefits to the wider economy.”
“A global recovery strategy must be a green strategy,” La Camera added. “Renewables offer a way to align short-term policy action with medium- and long-term energy and climate goals. Renewables must be the backbone of national efforts to restart economies in the wake of the COVID-19 outbreak. With the right policies in place, falling renewable power costs, can shift markets and contribute greatly towards a green recovery.”
Renewable electricity costs have fallen sharply over the past decade, driven by improving technologies, economies of scale, increasingly competitive supply chains and growing developer experience. Since 2010, utility-scale solar PV power has shown the sharpest cost decline at 82%, followed by concentrating solar power (CSP) at 47%, onshore wind at 39% and offshore wind at 29%.
Costs for solar and wind power technologies also continued to fall year-on-year. Electricity costs from utility-scale solar PV fell 13% in 2019, reaching a global average of 6.8 cents (USD 0.068) per kilowatt-hour (kWh). Onshore and offshore wind both declined about 9%, reaching USD 0.053/kWh and USD 0.115/kWh, respectively.
Recent auctions and power purchase agreements (PPAs) show the downward trend continuing for new projects are commissioned in 2020 and beyond. Solar PV prices based on competitive procurement could average USD 0.039/kWh for projects commissioned in 2021, down 42% compared to 2019 and more than one-fifth less than the cheapest fossil-fuel competitor namely coal-fired plants. Record-low auction prices for solar PV in Abu Dhabi and Dubai (UAE), Chile, Ethiopia, Mexico, Peru and Saudi Arabia confirm that values as low as USD 0.03/kWh are already possible.
For the first time, IRENA’s annual report also looks at investment value in relation to falling generation costs. The same amount of money invested in renewable power today produces more new capacity than it would have a decade ago. In 2019, twice as much renewable power generation capacity was commissioned than in 2010 but required only 18% more investment.
Palestinian Economy Struggles as Coronavirus Inflicts Losses
An abrupt decline in economic activities and pressure on the Palestinian Authority (PA)’s finances have placed Palestinian livelihoods at high risks, as the impact of the Coronavirus (COVID-19) continues to hit the economy hard. After growth of a mere 1% in 2019, the economy is projected to contract by at least 7.6% in 2020. Beyond the immediate crisis, lifting restrictions on the development of digital infrastructure and fostering better regulations could play an important role in stimulating an already faltering economy.
“With the COVID-19 pandemic in its third month, the crisis is affecting Palestinian lives and livelihoods. The Palestinian Authority has acted early and decisively to save lives. However, several years of declining donor support and the limited economic instruments available have turned the ability of the government to protect livelihoods into a monumental task. Hence, external support will be critical to help grow the economy during this unprecedented period,” said Kanthan Shankar, World Bank Country Director for West Bank and Gaza.
The new World Bank economic monitoring report* highlights critical challenges facing the Palestinian economy. The economy may shrink by at least 7.6%, based on a gradual return to normality from the containment, and by up to 11% in the case of a slower recovery or further restrictions. The PA’s fiscal situation is expected to become increasingly difficult, due to a decline in revenues and substantial increase in public spending on people’s medical, social and economic needs. Even with reallocations of some expenditures, the financing gap could increase alarmingly, from an already high $800 million in 2019 to over $1.5 billion in 2020 to adequately address these needs.
Even prior to the Coronavirus pandemic, more than a quarter of Palestinians lived below the poverty line. The share of poor households is now expected to increase to 30% in the West Bank and to 64% in Gaza. Even more striking is the youth unemployment rate of 38%, well beyond the Middle East & North Africa’s regional average. The economy’s potential remains confined by restrictions on the movement of people and goods. The report makes a case for developing a digital economy to help bridge this divide and create high-end jobs.
“The digital economy can overcome geographic obstacles, foster economic growth and create better job opportunities for Palestinians. With its tech-savvy young population, the potential is huge. However, Palestinians should be able to access resources similar to those of their neighbors’, and they should be able to rapidly develop their digital infrastructure as well,” added Shankar.
The report emphasizes that digital infrastructure is foundational to the development of a digital economy. At a time when other countries are contemplating the use of 5G, the Palestinian territories are among the last places in the Middle East to launch 3G in the West Bank and 2G in Gaza. The operators are at a competitive disadvantage, facing restrictions on access to spectrum, sites for network coverage and import of certain telecom equipment. They compete against operators who can offer unlicensed 4G/LTE services in the West Bank and 3G in Gaza for those in proximity to Israeli networks (through pre-paid SIM cards).
The World Bank report recommends specific reforms to be made in collaboration with Israel, including the revival of the Joint Telecommunications Committee to resolve bilateral issues, agreeing on a timeframe for the allocation of 4G spectrum and ultimately 5G, lifting restrictions on equipment needed to introduce new technologies, and mitigating the effect of unauthorized telecom activity in the Palestinian territories.
It also calls on the PA to act on developing a comprehensive strategy for the sector, establishing an independent regulator and prioritizing the passing of a new telecommunications law in line with international best practice. The role of the donors is vital to provide support for the institutional development needed in the telecom sector, help with innovative financing schemes to mitigate the political risks and increase private sector investment.
*The report will be presented to the Ad Hoc Liaison Committee (AHLC) during a virtual meeting on June 2, 2020. This will be a policy-level meeting for development assistance to the Palestinian people.
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