Macro Economic Highlights of 4 Months: Inflation Decreased to 8.08%; Remittance Upsurged by 20.4%; Foreign Reserve Sufficient to Cover 9.7 Months Import

Nepal Rastra Bank (NRB), the central bank of Nepal, has unveiled the current macroeconomic and financial situation of Nepal based on four months’ data ending mid-November, 2022/23)

Overall

The Nepal Rastra Bank estimated that the inflation remained at 8.08 percent on a y-o-y basis. The gross foreign exchange reserves stood at USD 9.63 billion, whereas, the total imports and exports decreased by 18.1 percent and 33.3 percent respectively during the mentioned period.

As of mid-November 2022, the outstanding concessional loan is Rs.210.12 billion extended to 148,433 borrowers. Of this, Rs.138.69 billion has been extended to 60,461 borrowers for selected commercial agriculture and livestock businesses. Likewise, Rs. 68.06 billion loan has been extended to 85,138 women entrepreneurs. A total of 2,834 borrowers have availed of Rs.3.37 billion in concessional loans in other specified sectors.

NEPSE index stood at 1911.3 in mid-November 2022 compared to 2784.6 in mid-November 2021.

Inflation

The y-o-y consumer price inflation remained at 8.08 percent in mid-November 2022 compared to 6.04 percent a year ago.

The y-o-y wholesale price inflation increased 10.02 percent in the review month compared to 6.68 percent a year ago. The y-o-y wholesale price of consumption goods, intermediate goods, and capital goods increased 5.62 percent, 13.49 percent, and 4.69 percent respectively. The wholesale price of construction materials increased by 11.89 percent in the review month.

Import and Export

During the four months of 2022/23, merchandise exports decreased 33.3 percent amounting to Rs.54.77 billion against an increase of 104.3 percent in the same period of the previous year. Destination-wise, exports to India and China decreased by 42.3 percent and 34.2 percent respectively, whereas exports to other countries increased by 7.4 percent. Exports of zinc sheets, particle board, woollen carpets, tea, and readymade garments, among others, increased, whereas exports of soyabean oil, palm oil, oil cakes, jute goods, and textiles, among others, decreased in the review period.

During the said period, merchandise imports decreased by 18.1 percent amounting to Rs.532.69 billion against an increase of 61.6 percent a year ago. Destination-wise, imports from India, China, and other countries decreased by 16.5 percent, 20.9 percent, and 20.1 percent respectively. Imports of petroleum products, chemical fertilizer, sponge iron, gold, and aircraft spare parts, among others, increased whereas imports of transport equipment & parts, silver, telecommunication equipment and parts, M.S. billet, crude soyabean oil, among others, decreased in the review period.

The total trade deficit decreased 15.9 percent to Rs.477.92 billion during the four months of 2022/23. Such a deficit had increased by 56.8 percent in the corresponding period of the previous year. The export-import ratio decreased to 10.3 percent in the review period from 12.6 percent in the corresponding period of the previous year.

Services and Remittance

Net services income remained at a deficit of Rs.23.30 billion in the review period compared to a deficit of Rs.30.79 billion in the same period of the previous year.

Remittance inflows increased 20.4 percent to Rs.378.04 billion in the review period against a decrease of 7.0 percent in the same period of the previous year. In the US Dollar terms, remittance inflows increased 10.8 percent to 2.93 billion in the review period against a decrease of 7.3 percent in the same period of the previous year.

Inter-bank Transaction

In the review period, BFIs interbank transactions amounted to Rs.1267.22 billion including Rs.1148.27 billion inter-bank transactions among commercial banks and Rs.118.95 billion among other financial institutions (excluding transactions among commercial banks). In the corresponding period of the previous year, such transactions were Rs.1201.62 billion including Rs.1043.22 billion among commercial banks and Rs. 158.40 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 increased 11.8 percent to US dollar 92.61 per barrel in mid-November 2022 from US dollar 82.85 per barrel a year ago. The price of gold decreased 4.6 percent to US dollar 1773.00 per ounce in mid-November 2022 from US dollar 1859.20 per ounce a year ago.

Foreign Exchange Reserves and Adequacy Indicators

Gross foreign exchange reserves increased 2.5 percent to Rs.1246.27 billion in mid-November 2022 from Rs.1215.80 billion in mid-July 2022. In US dollar terms, the gross foreign exchange reserves increased 1.0 percent to 9.63 billion in mid-November 2022 from 9.54 billion in mid-July 2022.

Of the total foreign exchange reserves, reserves held by NRB increased 3.3 percent to Rs.1091.22 billion in mid-November 2022 from Rs.1056.39 billion in mid-July 2022. Reserves held by banks and financial institutions (except NRB) decreased 2.7 percent to Rs.155.05 billion in mid-November 2022 from Rs.159.41 billion in mid-July 2022. The share of Indian currency in total reserve stood at 23.5 percent in mid-November 2022.

Based on the imports of four months of 2022/23, the foreign exchange reserves of the banking sector is sufficient to cover the prospective merchandise imports of 9.7 months, and merchandise and services imports of 8.4 months. The ratio of reserves-to-GDP, reserves-to-imports, and reserves-to-M2 stood at 25.7 percent, 70.0 percent, and 22.4 percent respectively in mid-November 2022. Such ratios were 25.1 percent, 57.8 percent, and 22.1 percent respectively in mid-July 2022.

Exchange Rate

Nepalese currency vis-à-vis the US dollar depreciated 1.51 percent in mid-November 2022 from mid-July 2022. It had appreciated 0.13 percent in the same period of the previous year. The buying exchange rate per US dollar stood at Rs.129.46 in mid-November 2022 compared to Rs.127.51 in mid-July 2022.

According to data from the Financial Comptroller General Office (FCGO), the Ministry of Finance stood at Rs.351.00 billion. The recurrent expenditure, capital expenditure, and financial management expenditure amounted to Rs.281.39 billion, Rs.26.30 billion, and Rs.43.31 billion respectively in the review period.

In the review period, the total revenue mobilization of the Federal Government (including the amount to be transferred to provincial and local governments) stood at Rs.268.07 billion. The tax revenue amounted to Rs.245.79 billion and non-tax revenue amounted to Rs.22.28 billion in the review period.

Banking

Domestic credit increased by 2.2 percent in the review period compared to an increase of 5.9 percent in the corresponding period of the previous year. On a y-o-y basis, domestic credit increased by 10.5 percent in mid-November 2022.

Monetary Sector's claims on the private sector increased by 2.4 percent in the review period compared to an increase of 9.4 percent in the corresponding period of the previous year. On a y-o-y basis, such claims increased by 6.0 percent in mid-November 2022.

Interest Rates

The average base rate of commercial banks increased to 10.60 percent in the fourth month of 2022/23 from 7.82 percent a year ago. The weighted average deposit rate and lending rate of commercial banks stood at 8.32 percent and 12.65 percent respectively in the review month. Such rates were 5.80 percent and 9.02 percent respectively a year ago.