Tourism Economic Growth

 Economic Growth

              The process of structural change is taking place in the Nepalese economy, although very slowly. The pressure on price has remained high in recent years due to the slow growth in agriculture production caused by the adverse weather conditions, the increase in the price of petroleum products, and the consequent rise in transport cost. The annual average inflation based on national consumer price index, recorded a rise of 8,6 percent during 2007 (CIA-The world fact book, 2008). The instability of prices has continued over the years because of several reasons: First, agricultural production which is critical factor for ensuring smooth supply of food grains is vulnerable to weather condition; and cyclical nature. Agricultural production growth has also created cyclical pressure on the prices of agricultural produces. A rise in the prices of non- food and services which carries a weight of 46.8% has contributed more to an increase in the annual average inflation rate. Second, due to open border with India and free flow of goods across the border facilitated by the free and unlimited convertibility of the Nepalese rupee into Indian rupee, prices in Nepal remain deeply influenced by Indian prices. Third, gradual deregulation of the administered prices leading to price rise in critical areas like electricity, fertilizer, and petroleum products has escalated the cost of production leading to inflationary pressure in the Nepalese economy. In recent years, the price of petroleum products has increased and in all probability the trend will continue in future as well. In addition, the increase of economic activities in the country will create additional demand for POL products that will have to be met by an increase in total import, thus putting pressure on the price level of the economy. Fourthly, Nepalese market suffers from fragmentation, asymmetric information, lack of competition, and inadequate regulatory mechanism which often results in price distortions and inflation. Finally, the disturbances in the economy because  of  strikes, forced closures of the industrial establishments, the imposition of curfews and hindrances in the smooth transportation of good and vehicles and so on also affected the price level.

              The structure of the economy is such that the share of the agriculture sector in GDP at factor cost in 2001/02 is estimated to be around 39.4 percent and that of the non-agriculture sector is 60.6 percent, but in 2005/06, the share of the agriculture sector in GDP at factor cost declined marginally to 38.8 percent with the share of non-agricultural increased slightly to 61.2 percent. But, macro-economic stability continued to remain a major challenge during the first four years of the Current Tenth Plan/PRSP, 2002-2007 (Ministry of Finance, 2008).

            Nepal's rates of economic growth during the past four years have been unsatisfactory when compared to the Tenth Plan/PRSP target. The growth has been erratic, from a negative of 0.3 percent in FY01/02 to 2.4 percent in 05/06, with lot of fluctuations in between.