Government spending usually increases in the final quarter of the fiscal year, driving economic growth. However, this was not the case in the last fiscal year. The National Statistics Office estimates that the country’s economy grew by 2.1% in the fourth quarter (mid-May to mid-July) of fiscal year 2023/24, compared to the same period the previous year. During the same quarter of fiscal year 2022/23, the growth rate stood at 3.7%.

Previously, the Office had forecast an annual economic growth rate of 3.87% for fiscal year 2023/24. The economy, which had been severely impacted by the COVID-19 pandemic, has yet to fully recover. In the second quarter of fiscal year 2022/23, the economy contracted by 1.1%. Although growth rates have not turned negative since then, the economy has not experienced significant expansion, according to published data.

Deputy Chief Statistical Officer, Dr Hemraj Regmi,  explained that ineffective capital expenditure and delays in payments for completed work meant government spending could not uplift the economy in the final quarter of the last fiscal year.

The Ministry of Finance reported that nearly half of capital expenditure payments were made in the fourth quarter of the last fiscal year. However, capital expenditure remained below Rs 200 billion, resulting in negligible impact on the economy. "Typically, government spending spikes in the fourth quarter, but this time it did not, which had a noticeable effect on the economy," Dr. Regmi said. "Additionally, the slowdown in real estate transactions negatively impacted the construction sector."

When government’s capital expenditure increases, the construction sector becomes active. Manufacturing industries that produce construction materials such as cement and steel increase production. However, according to another report from the National Statistics Office, cement production declined by 7% in the fourth quarter of the last fiscal year.

As a result, the growth rate of the construction sector is estimated to have contracted by 13.4% during this quarter. Despite the increase in electricity production in the country, the growth rate of the electricity and gas sectors is projected to be negative in the fourth quarter of the last fiscal year. The information technology sector is also estimated to have contracted.

Ravi Singh, president of the Federation of Contractors’ Associations of Nepal, attributed the continued contraction in the construction sector to the government’s shortcomings. He pointed out that the government still owes contractors billions of rupees for completed work. Delayed government payments have made it extremely difficult to expand investment in the construction sector. "We were confident that old payments would be settled before Dashain, but the government used the excuse of floods and landslides to delay them," he told  New Business Age .

Singh further emphasized that to revitalize the construction sector, the government should immediately release overdue payments and extend deadlines for projects delayed by various factors to create a conducive working environment. According to the National Statistics Office, 15 of the 18 industrial categories showed improvement in the fourth quarter of the last fiscal year, while three recorded negative growth.

However, improvements in the hospitality sector, driven by increased agricultural production and tourist arrivals, contributed to overall economic growth, the Office noted.

In the fourth quarter of the last fiscal year, the accommodation and food services group saw the highest growth, increasing by 12.3%. Similarly, transport and warehousing grew by 10.9%, administration and defense by 10.8%, and financial and insurance services by 6.2%.

According to the Office, the fourth quarter saw the lowest economic growth compared to the other three quarters of fiscal year 2023/24. The economy is projected to have grown by 4.5% in the first quarter, 4.6% in the second quarter, and 3.1% in the third quarter.

The Office also publishes data on seasonally adjusted gross domestic product, accounting for seasonal variations in production and transactions within the economy. For example, paddy, the country’s primary agricultural crop, is harvested in the second quarter. Adjusting this across all four quarters offers a different economic perspective.

Accordingly, the economy grew by 1% in the fourth quarter (mid-May to mid-July) compared to the third quarter (mid-February to mid-April) of the last fiscal year. Notably, production in sectors such as mining and electricity increased during the fourth quarter. Discussions around the economic slowdown have persisted for a long time. Business owners have frequently cited a lack of demand and an unprecedented slowdown in the market.

However, the economic growth rate, a key indicator used to gauge the economy's health, shows that the economy is not in recession. Economists explain that a recession is defined by negative growth for two consecutive quarters. While the economy is not technically in recession, the data clearly indicates a slowdown. Statistical Officer Regmi noted that the economy has shown little momentum in the current fiscal year as well.

 "In the last three months, development activities have not significantly increased. However, this period generally sees limited construction activity," he said. "Although agricultural production, including paddy, is expected to be good, the recent floods and landslides may also have an impact."