Study the following macroeconomic situation of Nepal and answer the questions followed:
The Fifteenth Plan (2019/20-23/24) of Nepal has formulated 25-year vision to graduate Nepal to a middle-income country by 2050 and to reach the level of developed countries by 2043 with a per capita national income of 12,100 US dollar. The plan projects a high economic growth rate of 10.5 percent in average for achieving the national goals under the long-term vision.
During past four decades Nepal has achieved average real GDP growth rate of 4.2 percent but still the agriculture of Nepali economy is dominated by primary agriculture sector. Basic infrastructures are limited and underdeveloped situation and the country is very far behind in technological development.
Nepal is rich in natural resources and has sufficient human resources. However, use of natural resources and human resources efficiently, increase in capital formation rate, development of social infrastructure, technological change and innovation, strengthening institutions and values toward development are the key tasks of achieving equitable economic prosperity and qualitative improvement in citizens' lives.
In budget 2022/23, government has expected economic growth of 8 percent attributed to mobility in economy, economic revival, encouraging private sector investment and the investment made by the government in economic and social sectors. For this, government has allocated Rs.1,793.83 billion out which 42 percent is for current expenditure, 21.2 percent for capital expenditure, 12.8 percent for financing and 24 percent for fiscal transfers to provinces and local levels.
In 2022/23, Nepal Rastra Bank (NRB) has kept the monetary policy cautiously tight to promote macroeconomic stability by maintaining price and external sector stability and to support economic growth through channeling productivity by channeling financial resources to the productive sector. NRB has increased the bank rate to 6.5 percent, the policy rate to 7.0 percent and cash reserve ratio to 4 percent. As a result, credit expansion to the private sector will be limited to 12.6 percent, a sharp reduction from the target of 18 percent in the last fiscal year, and growth of money supply will be limit to 12 percent from the last fiscal year's target of 18 percent.
Questions:
a. Identify the sources of economic development of Nepal and explain them.
b. Are the monetary policy and the fiscal policy 2022/23 able to achieve the targeted growth rate of 8 percent? Give your critical argument.
c. Is current pace of economic growth sufficient to achieve the goals under the long-term vision of Nepal? Give your conclusion.
