Kathmandu - The Asian Development Bank (ADB) has downgraded Nepal's economic growth rate for 2008, saying the country faces serious food problems and possible high inflation rate. The ADB in its report Asian Development Outlook 2008 said Nepal could see inflation hitting as high as 7 per cent this year.
"The difficulties for Nepal are deeper than most countries as it has not adjusted fuel prices," ADB country director Paul J Heytens said. "Once the oil prices are adjusted, inflationary pressure will mount, further eroding the purchasing power of low income groups."
He also said Nepal faced serious problems importing rice, which is the staple food for Nepalese.
The bank cited restrictions on rice exports by India and Indonesia as the main reasons for the fears of food shortage.
Net food importing countries like Nepal could face problems in terms of availability and affordability of food, the ADB said.
"In such a situation, the government could provide targeted subsidies in the form of cash transfers to protect the interests of the poor and low groups," Heytens said.
Nepal depends on India for more than 50 per cent of the rice supply.
The bank also lowered the country's projected economic growth rate to 3.8 per cent from the earlier expected figures of more than 4 per cent by Nepalese central bank.
The growth forecast was based on the projection that the agricultural sector would grow by 4 per cent and that services and industry would grow by 4.2 and 2.5 per cent during the year.
"Agriculture and services sectors have performed better than previous years," Heytens said. "However, continued political instability and deteriorating industrial security have kept private sector investments at bay and rigid labour laws and slowed growth have hit new job creation."
ADB is one of Nepal's largest donor and lending partners. The bank said it would provide Nepal with the assistance of 107 million dollars in 2008 and added the amount could increase in the peace process remained intact.
