Central Bank Releases Annual Macroeconomic and Financial Report on Nepal's 2022/23 Situation

Nepal Rastra Bank, the central bank of Nepal, has unveiled the current macroeconomic and financial situation of Nepal based on the annual data for 2022/23.

Overall

Nepal Rastra Bank estimated that the inflation remained at 7.74 percent on a y-o-y basis. The gross foreign exchange reserves stood at USD 11.74 billion, whereas, the total imports and exports decreased by 16.1 percent and 21.4 percent respectively. In the previous year, imports increased 24.7 percent and exports increased 41.7 percent.

The outstanding amount of interest-subsidized loans extended to 145,778 borrowers is Rs.197.06 billion in mid-July 2023. Of this, Rs.135.76 billion has been extended to 60,350 borrowers for commercial agriculture and livestock businesses. Likewise, Rs.58.38 billion loan has been extended to 82,718 women entrepreneurs. The remaining Rs. 2.91 billion loan has been extended to 2,710 borrowers of other categories of concessional loans.

NEPSE index stood at 2097.1 in mid-July 2023 compared to 2009.5 in mid-July 2022.

Real Sector

In the fiscal year 2022/23, the National Statistics Office has projected an estimated economic growth rate of 1.86 percent based on producer prices. This growth is expected to be driven by various sectors of the economy. The agriculture sector is anticipated to experience a growth rate of 2.73 percent, contributing to the overall economic expansion. The industrial sector, on the other hand, is expected to see a more modest growth rate of 0.59 percent, while the service sector is projected to grow at a rate of 2.33 percent.

The composition of the country's Gross Domestic Product (GDP) for the fiscal year 2022/23 reflects the diverse contributions of different sectors. The agriculture sector constitutes approximately 24.12 percent of the GDP, highlighting its significance in the economy. The industry sector holds a 13.45 percent share of the GDP, while the service sector, being the largest contributor, accounts for a substantial 62.43 percent share.

When examining the savings and investment patterns of the country, it is noted that the ratio of gross domestic savings to GDP is 6.41 percent for the fiscal year 2022/23. Furthermore, the ratio of gross fixed capital formation to GDP stands at 25.21 percent, indicating the proportion of investment in physical assets like infrastructure, machinery, and equipment. Additionally, the ratio of gross national savings to GDP is 31.66 percent.

In terms of energy infrastructure, the installed capacity of electricity has experienced growth, reaching 2684.4 Megawatts in the fiscal year 2022/23. This capacity is distributed across various sources. The majority of electricity generation comes from hydroelectric sources, constituting 2537.9 Megawatts, highlighting the country's reliance on this renewable energy source. Complementing the hydroelectric capacity are solar and cogeneration sources, contributing 87 Megawatts and 6.0 Megawatts, respectively. Additionally, the thermal electricity sector contributes 53.4 Megawatts to the overall installed capacity, diversifying the energy mix and ensuring a balanced approach to power generation.

Inflation

The annual average consumer price inflation stood at 7.74 percent in FY 2022/23 compared to 6.32 percent a year ago.

The annual average wholesale price inflation stood at 8.47 percent in 2022/23 compared to 9.51 percent a year ago. The y-o-y wholesale price inflation stood at 4.98 percent in mid-July 2023 compared to 12.74 percent a year ago. The y-o-y salary and wage rate index increased 8.71 percent in mid-July 2023 compared to 9.09 percent a year ago. The salary index and wage rate index increased by 12.39 percent and 7.68 percent, respectively.

Import and Export

During 2022/23, merchandise exports decreased 21.4 percent to Rs.157.14 billion against an increase of 41.7 percent in the previous year. Destination-wise, exports to India decreased by 31.3 percent whereas exports to China and other countries increased by 118.3 percent and 10.7 percent respectively. Exports of zinc sheet, particle board, cardamom, woolen carpets, polyester yarn & thread, among others, increased whereas exports of soyabean oil, palm oil, oil cakes, textiles, silverware, and jewelry, among others, decreased in the review period.

In the review year, merchandise imports decreased 16.1 percent to Rs.1611.73 billion against an increase of 24.7 percent a year ago. Destination-wise, imports from India, China, and other countries decreased by 14.4 percent, 15.9 percent, and 20.7 percent respectively. Imports of sponge iron, chemical fertilizer, other stationeries, bitumen, and paper, among others, increased whereas imports of transport equipment & parts, M.S. billet, medicine, petroleum products, and crude soyabean oil, among others, decreased in the review year.

The total trade deficit decreased 15.5 percent to Rs.1454.59 billion in the review year. Such a deficit had increased by 23.0 percent in the previous year. The export-import ratio decreased to 9.7 percent in the review year from 10.4 percent in the previous year.

Services and Remittance

Net services income remained at a deficit of Rs.83.85 billion in 2022/23 compared to a deficit of Rs.108.12 billion in the previous year.

Remittance inflows increased 21.2 percent to Rs.1220.56 billion during 2022/23 compared to an increase of 4.8 percent in the previous year. In US Dollar terms, remittance inflows increased 12.1 percent to 9.33 billion in the review year compared to an increase of 2.2 percent in the previous year.

Inter-bank Transaction

In the review year, BFIs’ interbank transactions amounted to Rs.4294.22 billion including Rs.3942.15 billion inter-bank transactions among commercial banks and Rs.352.07 billion among other financial institutions (excluding transactions among commercial banks). In the previous year, such transactions were Rs.3100.35 billion including Rs.2784.10 billion among commercial banks and Rs.316.25 billion among other financial institutions (excluding transactions among commercial banks).

Price of Oil and Gold

The price of oil (Crude Oil Brent) in the international market decreased 32.9 percent to US dollar 75.32 per barrel in mid-July 2023 from US dollar 112.26 per barrel a year ago. The price of gold increased 14.5 percent to US dollar 1953.70 per ounce in mid-July 2023 from US dollar 1706.15 per ounce a year ago.

Foreign Exchange Reserves and Adequacy Indicators

Gross foreign exchange reserves increased 26.6 percent to Rs.1539.36 billion in mid-July 2023 from Rs.1215.80 billion in mid-July 2022. In US dollar terms, the gross foreign exchange reserves increased 23.1 percent to 11.74 billion in mid-July 2023 from 9.54 billion in mid-July 2022.

Of the total foreign exchange reserves, reserves held by NRB increased 27.4 percent to Rs. 1345.78 billion in mid-July 2023 from Rs. 1056.39 billion in mid-July 2022. Reserves held by banks and financial institutions (except NRB) increased 21.4 percent to Rs. 193.59 billion in mid-July 2023 from Rs.159.41 billion in mid-July 2022. The share of Indian currency in total reserves stood at 22.5 percent in mid-July 2023.

Based on the imports of 2022/23, the foreign exchange reserves of the banking sector are sufficient to cover the prospective merchandise imports of 11.7 months and merchandise and services imports of 10 months. The ratio of reserves-to-GDP, reserves-to-imports, and reserves-to-M2 stood at 28.6 percent, 83.0 percent, and 25.1 percent respectively in mid-July 2023. Such ratios were 24.6 percent, 57.8 percent, and 22.1 percent respectively in mid-July 2022.

Exchange Rate

Nepalese currency vis-à-vis the US dollar depreciated 2.79 percent in mid-July 2023 from mid-July 2022. It had depreciated 6.64 percent in the previous year. The buying exchange rate per US dollar stood at Rs.131.17 in mid-July 2023 compared to Rs. 127.51 in mid-July 2022.

According to Financial Comptroller General Office, the total expenditure of the Nepal government (FCGO), Ministry of Finance, amounted to Rs.1429.56 billion in 2022/23 compared to Rs.1296.24 billion a year ago. The recurrent expenditure, capital expenditure, and financing expenditure of the federal government amounted to Rs.1005.76 billion, Rs.233.70 billion, and Rs.190.11 billion respectively in 2022/23

In the review period, the total revenue mobilization of the Federal Government (including revenue and other receipts) of the Nepal government stood at Rs.1010.39 billion in 2022/23. The tax revenue (including the amount to be transferred to provincial and local governments) stood at Rs.957.15 billion in 2022/23.

Banking

Domestic credit increased 8.7 percent in the review year compared to a growth of 14.5 percent in the previous year. Monetary Sector's claims on the private sector increased by 4.6 percent in the review year compared to a growth of 13.3 percent in the previous year.

Interest Rates

The average base rate of commercial banks increased to 10.03 percent in the last month of 2022/23 from 9.54 percent a year ago. The weighted average deposit rate and lending rate of commercial banks stood at 7.86 percent and 12.30 percent respectively in the last month of 2022/23. Such rates were 7.41 percent and 11.62 percent respectively a year ago.

Balance of Payments

Balance of Payments (BOP) remained at a surplus of Rs.290.52 billion in the review year against a deficit of Rs. 255.26 billion in the previous year. In US Dollar terms, the BOP remained at a surplus of 2.21 billion in the review year compared to a deficit of 2.15 billion in the previous year.