Macroeconomic Highlights of 10 Months: Inflation at 7.41%; Remittance Upsurged by 23.4%; Foreign Reserve Sufficient to Cover 9.7 Months Import

Fri, Jun 9, 2023 1:48 PM on Economy, National, Latest,

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

Overall

Nepal Rastra Bank estimated that the inflation remained at 7.41 percent on a y-o-y basis. The gross foreign exchange reserves stood at USD 11.21 billion, whereas, the total imports and exports decreased by 16.8 percent and 24.5 percent respectively and the trade deficit decreased by 15.9 percent during the mentioned period.

As of mid-May 2023, the outstanding concessional loan remained at Rs. 203.25 billion extended to 146,866 borrowers. Of this, Rs.138.88 billion has been extended to 60,713 borrowers for selected commercial agriculture and livestock businesses. Likewise, Rs.61.31 billion loans have been extended to 83,358 women entrepreneurs. A total of 2,795 borrowers have availed of Rs. 3.07 billion concessional loans in other specified sectors.

NEPSE index stood at 1821.65 in mid-May 2023 compared to 2350.43 in mid-May 2022.

Inflation

The y-o-y consumer price inflation remained at 7.41 percent in mid-May 2023 compared to 7.87 percent a year ago.

The y-o-y wholesale price inflation increased by 3.31 percent in the review month compared to 16.06 percent a year ago. The y-o-y wholesale price of intermediate goods and capital goods increased 7.04 percent and 4.33 percent respectively while the wholesale price of consumption goods dropped 3.12 percent. The wholesale price of construction materials increased by 2.68 percent in the review month.

Import and Export

During the ten months of 2022/23, merchandise exports decreased 24.5 percent and stood at Rs.130.90 billion against an increase of 59.8 percent in the same period of the previous year. Destination-wise, exports to India decreased by 33.6 percent whereas exports to China and other countries increased by 100.6 percent and 8.2 percent respectively. Exports of zinc sheet, particle board, cardamom, woolen carpets, polyester yarn, and thread, among others, increased whereas exports of soyabean oil, palm oil, oil cakes, textiles, silverware, and jewelry, among others, decreased in the review period.

During the ten months of 2022/23, merchandise imports decreased 16.8 percent and stood at Rs.1335.32 billion against an increase of 28.0 percent a year ago. Destination-wise, imports from India, China, and other countries decreased by 15.1 percent, 21.0 percent, and 18.6 percent respectively. Imports of chemical fertilizer, sponge iron, gold, petroleum products, and paper, among others, increased whereas imports of transport equipment and parts, M.S. billet, medicine, other machinery and parts, telecommunication equipment and parts, among others, decreased in the review period.

The total trade deficit decreased by 15.9 percent and stood at Rs.1204.42 billion during the ten months of 2022/23. Such a deficit had increased by 24.9 percent in the corresponding period of the previous year. The export-import ratio decreased to 9.8 percent in the review period from 10.8 percent in the corresponding period of the previous year.

Services and Remittance

Net services income remained at a deficit of Rs.57.74 billion in the review period compared to a deficit of Rs.88.18 billion in the same period of the previous year.

Remittance inflows increased 23.4 percent to Rs.1005.18 billion in the review period compared to an increase of 0.5 percent in the same period of the previous year. In the US Dollar terms, remittance inflows increased 13.4 percent to 7.70 billion in the review period against a decrease of 1.2 percent in the same period of the previous year.

Inter-bank Transaction

In the review period, BFIs interbank transactions amounted to Rs.3441.97 billion on a turnover basis including Rs.3150.95 billion inter-bank transactions among commercial banks and Rs.291.02 billion among other financial institutions (excluding transactions among commercial banks). In the corresponding period of the previous year, such transactions were Rs.2739.87 billion including
Rs.2454.78 billion among commercial banks and Rs.285.09 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 33.5 percent to US dollar 74.54 per barrel in mid-May 2023 from US dollar 112.12 per barrel a year ago. The price of gold increased 11.5 percent to US dollar 2019.90 per ounce in mid-May 2023 from US dollar 1811.55 per ounce a year ago.

Foreign Exchange Reserves and Adequacy Indicators

Gross foreign exchange reserves increased 20.9 percent to Rs.1470.33 billion in mid-May 2023 from Rs.1215.80 billion in mid-July 2022. In US dollar terms, the gross foreign exchange reserves increased 17.6 percent to 11.21 billion in mid-May 2023 from 9.54 billion in mid-July 2022.

Of the total foreign exchange reserves, reserves held by NRB increased 24.1 percent to Rs.1310.66 billion in mid-May 2023 from Rs.1056.39 billion in mid-July 2022. Reserves held by banks and financial institutions (except NRB) increased 0.2 percent to Rs.159.68 billion in mid-May 2023 from Rs.159.41 billion in mid-July 2022. The share of Indian currency in total reserves stood at 22.6 percent in mid-May 2023.

Based on the imports of ten months of 2022/23, the foreign exchange reserves of the banking sector are sufficient to cover the prospective merchandise imports of 11.2 months and merchandise and services imports of 9.7 months. The ratio of reserves-to-GDP, reserves-to-imports, and reserves-to-M2 stood at 27.3 percent, 80.7 percent, and 25.0 percent respectively in mid-May 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-May 2023 from mid-July 2022. It had depreciated 3.71 percent in the same period of the previous year. The buying exchange rate per US dollar stood at Rs.131.17 in mid-May 2023 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.1047.76 billion. The recurrent expenditure, capital expenditure, and financial management expenditure amounted to Rs.786.74 billion, Rs.125.68 billion, and Rs.135.34 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.756.25 billion. The tax revenue amounted to Rs. 684.63 billion and non-tax revenue Rs. 71.62 billion in the review period.

Banking

Domestic credit increased by 5.7 percent in the review period compared to an increase of 11.6 percent in the corresponding period of the previous year. On a y-o-y basis, domestic credit increased 8.4 percent in mid-May 2023.

Monetary Sector's claims on the private sector increased by 4.7 percent in the review period compared to an increase of 14.3 percent in the corresponding period of the previous year. On a y-o-y basis, such claims increased by 3.8 percent in mid-May 2023.

Interest Rates

The average base rate of commercial banks increased to 10.27 percent in the tenth month of 2022/23 from 9.30 percent a year ago. The weighted average deposit rate and lending rate of commercial banks stood at 8.08 percent and 12.65 percent respectively in the review month. Such rates were 7.25 percent and 11.42 percent respectively a year ago.

Balance of Payments

Balance of Payments (BOP) remained at a surplus of Rs.214.67 billion in the review period compared to a deficit of Rs.288.50 billion in the same period of the previous year. In US Dollar terms, the BOP remained at a surplus of 1.63 billion in the review period against a deficit of 2.41 billion in the same period of the previous year.