Macroeconomic Highlights of 7 Months: Inflation at 7.88%; Remittance Upsurged by 27.1%; Foreign Reserve Sufficient to Cover 9.4 Months Import

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

Overall

The Nepal Rastra Bank estimated that the inflation remained at 7.88 percent on a y-o-y basis. The gross foreign exchange reserves stood at USD 10.50 billion, whereas, the total imports and exports decreased by 19.9 percent and 29 percent respectively and the trade deficit decreased by 18.7 percent during the mentioned period.

As of mid-February 2023, the outstanding concessional loan remained at Rs.210.96 billion extended to 148,295 borrowers. Rs.142.56 billion has been extended to 61,335 borrowers for selected commercial agriculture and livestock businesses. Likewise, Rs.65.19 billion loans have been extended to 84,105 women entrepreneurs. A total of 2,855 borrowers have availed of Rs.3.20 billion in concessional loans in other specified sectors.

NEPSE index stood at 2121.9 in mid-February 2023 compared to 2801.6 in mid-February 2022.

Inflation

The y-o-y consumer price inflation remained at 7.88 percent in mid-February 2023 compared to 6.24 percent a year ago.

The y-o-y wholesale price inflation increased 9.67 percent in the review month compared to 10.34 percent a year ago. The y-o-y wholesale price of consumption goods, intermediate goods, and capital goods increased by 3.49 percent, 14.02 percent, and 5.44 percent respectively. The wholesale price of construction materials increased by 12.07 percent in the review month.

Import and Export

During the seven months of 2022/23, merchandise exports decreased 29.0 percent to Rs.93.43 billion against an increase of 88.3 percent in the same period of the previous year. Destination-wise, exports to India and China decreased by 37.7 percent and 13.4 percent respectively whereas exports to other countries increased by 8.0 percent. Exports of zinc sheet, cardamom, particle board, woolen carpets, polyester yarn & thread, among others, increased whereas exports of soyabean oil, palm oil, oil cakes, textiles, silverware, and jewelleries, among others, decreased in the review period.

During the six months of 2022/23, merchandise imports decreased 19.9 percent to Rs.919.17 billion against an increase of 42.8 percent a year ago. Destination-wise, imports from India, China, and other countries decreased by 18.0 percent, 24.3 percent, and 22.0 percent respectively. Imports of petroleum products, sponge iron, chemical fertilizer, gold, and other stationeries, among others, increased whereas imports of transport equipment & parts, medicine, M.S. billet, telecommunication equipment and parts, and silver, among others, decreased in the review period.

The total trade deficit decreased 18.7 percent to Rs.825.73 billion during the seven months of 2022/23. Such a deficit had increased by 38.4 percent in the corresponding period of the previous year. The export-import ratio decreased to 10.2 percent in the review period from 11.5 percent in the corresponding period of the previous year.

Services and Remittance

Net services income remained at a deficit of Rs.38.45 billion in the review period compared to a deficit of Rs.55.09 billion in the same period of the previous year.

Remittance inflows increased 27.1 percent to Rs.689.88 billion in the review period against a decrease of 4.4 percent in the same period of the previous year. In US Dollar terms, remittance inflows increased 16.4 percent to 5.30 billion in the review period against a decrease of 5.3 percent in the same period of the previous year.

Inter-bank Transaction

In the review period, BFIs interbank transactions amounted to Rs.2260.52 billion on a turnover basis including Rs.2056.41 billion inter-bank transactions among commercial banks and Rs.204.12 billion among other financial institutions (excluding transactions among commercial banks). In the corresponding period of the previous year, such transactions were Rs.2130.21 billion including Rs.1893.28 billion among commercial banks and Rs. 236.93 billion among other financial institutions (excluding transactions among commercial banks).

Price of Oil and Gold

Foreign Exchange Reserves and Adequacy Indicators

Gross foreign exchange reserves increased 13.8 percent to Rs.1383.33 billion in mid-February 2023 from Rs.1215.80 billion in mid-July 2022. In US dollar terms, the gross foreign exchange reserves increased 10.2 percent to 10.50 billion in mid-February 2023 from 9.54 billion in mid-July 2022.

Of the total foreign exchange reserves, reserves held by NRB increased 16.2 percent to Rs.1228.05 billion in mid-February 2023 from Rs.1056.39 billion in mid-July 2022. Reserves held by banks and financial institutions (except NRB) decreased 2.6 percent to Rs.155.28 billion in mid-February 2023 from Rs.159.41 billion in mid-July 2022. The share of Indian currency in total reserves stood at 22.4 percent in mid-February 2023.

Based on the imports of seven months of 2022/23, the foreign exchange reserves of the banking sector are sufficient to cover the prospective merchandise imports of 10.8 months, and merchandise and services imports of 9.4 months. The ratio of reserves-to-GDP, reserves-to-imports, and reserves-to-M2 stood at 28.5 percent, 78.3 percent, and 24.0 percent respectively in mid-February 2023. 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 3.18 percent in mid-February 2023 from mid-July 2022. It had depreciated by 1.06 percent in the same period of the previous year. The buying exchange rate per US dollar stood at Rs.131.70 in mid-February 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.667.66 billion. The recurrent expenditure, capital expenditure, and financial management expenditure amounted to Rs.531.50 billion, Rs.66.30 billion, and Rs.69.86 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.514.69 billion. The tax revenue amounted to Rs.464.19 billion and non-tax revenue Rs.50.50 billion in the review period.

Banking

Domestic credit increased by 3.9 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, domestic credit increased 8.6 percent in mid-February 2023.

Monetary Sector's claims on the private sector increased by 4.3 percent in the review period compared to an increase of 12.9 percent in the corresponding period of the previous year. On a y-o-y basis, such claims increased by 4.6 percent in mid-February 2023.

Interest Rates

The average base rate of commercial banks increased to 10.72 percent in the seventh month of 2022/23 from 8.53 percent a year ago. The weighted average deposit rate and lending rate of commercial banks stood at 8.41 percent and 13.03 percent respectively in the review month. Such rates were 6.49 percent and 10.31 percent respectively a year ago.

Balance of Payments

The balance of payments remained at a surplus of Rs. 133.21 billion in the seventh month of 2022/23 from a deficit of Rs. 247.03 Billion in the seventh month of 2021/22. Balance of Payments is the difference in total value between payments into and out of a country over a period.