NRB suggests banks to cautiously bridge gap between deposit & lending as remittance growth slows (with full financial situation of Nepal as of Baisakh 2074)
- ShareSansar, June 9, 2017 on Exclusive , Featured , Latest , Stock Market
With the promulgation and implementation of new constitution and reconstruction works after the earthquake, Nepal’s economy is heading into a positive direction. Nepal Rastra Bank’s macroeconomic report based on the financial data of the first ten months of the ongoing FY 2073/74 (till Baisakh 2074) shows that the economy is gaining traction.
However, NRB has also added that that the ongoing improvement in power supply, acceleration in reconstruction works and development of national-pride projects will be the main requirements in sustaining the current economic growth onto the next fiscal year.
Inflation is the rate at which the general level of prices for goods and services is rising and, consequently, purchasing power of currency is falling. Central bank attempts to limit inflation, and avoid deflation, in order to keep the economy running smoothly. While excessive inflation and hyperinflation have negative economic consequences, deflation’s negative consequences for the economy can be just as bad or worse.
If we go back to past, there was an excess liquidity last year. The inflation was above 10%. The monetary policy put forward by the central bank was a contractionary policy so as to absorb the excessive liquidity and control the inflation. As a result, the inflation has continuously dropped and come down to 3.4% by the end of Baisakh this fiscal year. The inflation is likely to undershoot the annual target of 7.50% this year.
See Nepal’s full inflation scenario at ShareSansar’s new Economy section
Government Revenue & Expenditure
The Government of Nepal has expected to earn a revenue of Rs 565.90 billion and to spend Rs 1048.92 billion in the FY 2073/74.
In the review period of ten months, the government revenue collection increased 32.60% to Rs. 464.42 billion. Such revenue had increased 11.9% in the corresponding period of the previous year. Higher growth rate of major tax heads such as value added tax, income tax, customs, excise duty and others tax heads contributed to the overall rise in revenue collection in the review period.
On the other hand, the total government expenditure on a cash basis increased 43.7 percent to Rs. 478.63 billion. Such expenditure had increased just 8 percent to Rs. 333.14 billion in the corresponding period of the previous year.
The government currently holds Rs 262.35 billion in cash balance. This is due to the slow pace of government expenditure relative to resource mobilization.
Till the end of Baisakh 2074, the government had earned 82.10% of its targeted revenue and spent only 45.6% of the budgeted expenditure. Though the revenue earned is quite satisfactory, the expenditure done by the government is disappointing.
See Nepal Government’s full revenue and expenditure at ShareSansar’s new Economy section
Capital expenditure refers to the expenditure done by the government for the nation development. It is primarily the expenditure on the building of infrastructure and on the acquisition of tangible and intangible assets.
The government had targeted to spend Rs 311.95 billion as capital expenditure. But a poor progress is seen till the tenth month of this fiscal year. Though the amount of expenditure has surged compared to the last year, the amount is significantly low compared to the targeted expenditure. Only 28.9% of the budgeted capital expenditure was made till the tenth month.
See Nepal’s full Capital Expenditure at ShareSansar’s new Economy section
Remittance is considered as the pillar of Nepalese economy. Since a significant percentage of Nepalese workers work abroad, remittance contributes good percentage in the GDP of the nation. In 2015, Nepal topped the chart of top 10 inward remittance economies in Asia and the pacific. This shows the contribution of remittance in the Nepali economy.
In the review period, Nepal’s workers’ remittance increased 5.20% to Rs 566.97 billion. The growth in the corresponding period of last year was 10.20%. Though a growth is seen, it is less compared to the growth of last year. It shows the declining percentage of remittance income. Return of huge number of Nepalese worker after the massive earthquake has resulted in a declining growth. The recent tensions arising in the Gulf states might also hamper upcoming remittance.
Due to this decline in remittance growth, banks have been facing decreased growth in deposits. However, lending has not slowed down with the same extent. Due to this, NRB has suggested the BFIs to bridge the gap between deposit and credit disbursement.
See Nepal’s full Remittance inflow data at ShareSansar’s new Economy section
BFIs Deposit & Lending
While the BFIs are still facing a crunch in investable fund, the interest rates in fixed deposit and saving account has continuously been rising. Due to this, a growth is noticed in the deposit, however the growth is less compared to the growth of corresponding previous year.
Deposits at Banks and Financial Institutions (BFIs) increased 9.30 percent in the review period compared to an increase of 11.90 percent in the corresponding period of the previous year. On y-o-y basis, deposits at BFIs expanded 16.6 percent in mid-May 2017. Such growth was 19.5 percent a year ago. Of the total deposits at BFIs, while the share of demand deposits fell to 7.8 percent from 8.5 percent and saving deposits to 36.2 percent from 43.7 percent, the share of fixed deposits increased to 42.6 percent in mid-May 2017 from 29.7 percent a year ago.
Also See: BFIs Deposit/Lending Growth
Credit to the private sector from BFIs increased 16.6 percent in the review period compared to a rise of 16.2 percent in the same period of the previous year. In the review period, private sector credit from commercial banks and development banks increased 19.7 percent and 2.5 percent respectively, while that of finance companies decreased 1.7 percent. On y-o-y basis, credit to the private sector from BFIs increased 24.1 percent in mid-May 2017 compared to an increase of 21.1 percent a year ago.
The weighted average 91-day Treasury Bill rate decreased to 0.78 percent in mid-May 2017 from 1.34 percent a year ago. The T-bill rate was 0.93 in the last month. Likewise, the weighted average inter-bank transaction rate among commercial banks, which was 3.44 percent a year ago, dropped to 2.73 percent in the review month. The weighted average inter-bank rate among other financial institutions increased to 3.92 percent from 2.75 percent a year ago.
Budget Deficit / Surplus
In the first ten months of 2016/17, the Government of Nepal (GoN) was at a surplus of Rs. 59.91 billion in its budget. Such surplus was Rs. 64.82 billion in the corresponding period of the previous year. The budget surplus was 63.59 in the last month.
See Nepal’s Budget situation at ShareSansar’s new Economy section