NRB report: Government spending down by 7.8%; Consumer price inflation up by 10.4%

The Nepal Rastra Bank has released a year on year (y-o-y) report for the review period of the first four month for the fiscal year 2015/16. The main points of the reports are as follows:

Government Expenditure

During the review period, total government expenditure on cash basis dropped by 7.8 percent to Rs. 73.35 billion in contrast to an increase of 7.8 percent to Rs. 79.56 billion in the corresponding period of the previous year. Such decline in government expenditure in the review period can be attributed to the adverse impact of continuous Terai agitation and the unofficial blockade at customs points in the southern parts of the country.

Merchandise Export

Merchandise exports decreased significantly by 29.1 percent to Rs. 20.96 billion in the first four months of 2015/16 compared to a drop of 0.2 percent to Rs. 29.55 billion in the same period of the previous year. The total exports decreased due to a fall in exports to India, China and other countries on account of obstructions at the customs points.

Trade Deficit

Total trade deficit during the review period contracted by 37.8 percent to Rs. 140.04 billion compared to an expansion of 26.1 percent in the same period of the previous year. Trade deficit with India, China and other countries narrowed down by 42.1 percent, 20.6 percent, and 36 percent respectively in the review period. The FOB based trade deficit decreased by 37.8 percent to Rs. 135.75 billion in the review period.

Nepalese Currency

Nepalese currency vis-à-vis the US dollar depreciated by 4.1 percent in mid-November 2015 from mid-July 2015. It had depreciated by 2.6 percent in the same period of the previous year. The exchange rate per US dollar stood at Rs. 105.46 in mid-November 2015 compared to Rs. 101.14 in mid-July 2015.

Domestic credit

Domestic credit contracted by 0.2 percent in the review period in contrast to an increase of 2.2 percent in the same period of the previous year. On y-o-y basis, domestic credit increased by 12.9 percent in mid-November 2015. A rise in government deposits at this bank and the decelerated growth in monetary sector's claims on private sector resulted in a decline in domestic credit in the review period. Claims of 9 monetary sector on the private sector increased by 3.3 percent in the review period compared to a growth of 6.4 percent in the corresponding period of the previous year. On y-o-y basis, claims on the private sector increased by 15.9 percent in mid-November 2015 compared to a growth of 19.7 percent a year ago.

Government Revenue

 During the review period, the government revenue mobilization dropped by 19.4 percent to Rs. 92.57 billion. Such revenue had risen by 21.8 percent in the corresponding period of the previous year. Contraction in imports and slowdown in economic activities due to disturbances at southern customs points led to decrease in VAT, customs revenue, excise duty as well as non-tax revenue mobilization. The income tax has, however, increased by 14.9 percent in the review period.

Liquidity Management

 In the four months of 2015/16, the NRB mopped up Rs. 242.65 billion liquidity through various instruments. These consist of Rs. 157.25 billion liquidity through deposit collection auctions, Rs. 76.30 billion through reverse repo auction and Rs. 9.10 billion 10 through outright sale auction on a cumulative basis. The outstanding deposit collection auction amounted to Rs. 100 billion in mid November 2015. In the corresponding period of the previous year, Rs. 40 billion was mopped up through deposit collection auction and Rs. 198 billion through reverse repo auction. In the four months of 2015/16, total interest expenses incurred in mopping up liquidity through various instruments reached Rs. 447.3 million.

 In the review period, the NRB injected net liquidity of Rs. 154.28 billion through the net purchase of USD 1.48 billion from foreign exchange market (commercial banks). Net liquidity of Rs. 100.98 billion was injected through the net purchase of USD 1.10 billion in the corresponding period of the previous year.

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