Current Macroeconomic and Financial Situation of Nepal
(Based on Two Months’ Data Ending Mid-September, 2021/22)
Major Highlights
> CPI-based Inflation remained 3.49 percent on y-o-y basis.
> Imports increased 75.9 percent and exports increased 115.4 percent.
> Remittances decreased 6.3 percent in NPR terms and 5.8 percent in USD terms.
> Balance of Payments remained at a deficit of Rs.83.41 billion.
> Gross foreign exchange reserves stood at USD 11.14 billion.
> Federal Government spending amounted to Rs.89.94 billion and revenue collection Rs.168.58 billion.
> Broad money (M2) expanded 0.2 percent. On y-o-y basis, M2 expanded 20.9 percent.
> Deposits at BFIs increased 0.7 percent and claims on the private sector increased 6.5 percent. On y-o-y basis, deposits increased 21.7 percent and claims on the private sector 32.5 percent.
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Consumer Price Inflation
The y-o-y consumer price inflation stood at 3.49 percent in the second month of 2021/22 compared to 4.52 percent a year ago. Food and beverage inflation stood at 2.57 percent whereas non-food and service inflation stood at 4.22 percent in the review month.
Wholesale Price Inflation
The y-o-y wholesale price inflation stood at 3.11 percent in the review month compared to 8.80 percent a year ago.
Salary and Wage Rate Index
The y-o-y salary and wage rate index increased 4.84 percent in the review month. Such a growth rate was 1.20 percent a year ago. In the review month, salary index and wage rate index increased 9.44 and 3.52 percent, respectively.
Inflation in Nepal and India
The y-o-y consumer price inflation in Nepal in the second month of 2021/22 remained 3.49 percent. Such an inflation rate in India was 4.35 percent in September 2021.
Merchandise Trade
In two months of 2021/22, merchandise exports increased 115.4 percent to Rs.44.04 billion compared to an increase of 10.5 percent in the same period of the previous year.
In two months of 2021/22, merchandise imports increased 75.9 percent to Rs.314.52 billion against a decrease of 22.1 percent a year ago.
Total trade deficit increased 70.8 percent to Rs.270.48 billion in two months of 2021/22. Such a deficit had contracted 24.9 percent in the corresponding period of the previous year. The export-import ratio increased to 14.0 percent in the review period from 11.4 percent in the corresponding period of the previous year.
Services
Net services income remained at a deficit of Rs.17.52 billion in the review period compared to a deficit of Rs.6.52 billion in the same period of the previous year.
Under the service account, travel income increased 177.2 percent to Rs.2.71 billion in the review period which was Rs.976.9 million in the same period of the previous year.
Under the service account, travel payments increased 247.5 percent to Rs.10.28 billion, including Rs.6.37 billion for education. Such payments were Rs.2.96 billion and Rs.2.51 billion respectively in the same period of the previous year.
Remittances
Remittance inflows decreased 6.3 percent to Rs.155.37 billion in the review period against an increase of 8.1 percent in the same period of the previous year.
Number of Nepali workers (institutional and individual-new and legalized) taking approval for foreign employment increased significantly to 38,492 in the review period.
Current Account and Balance of Payments
The current account remained at a deficit of Rs.106.75 billion in the review period against a surplus of Rs.25.16 billion in the same period of the previous year.
In the review period, capital transfer decreased 36.3 percent to Rs.1.25 billion and net foreign direct investment (FDI) increased 24.6 percent to Rs.3.04 billion. In the same period of the previous year, capital transfer and net FDI amounted to Rs.1.96 billion and Rs.2.44 billion respectively.
Balance of Payments (BOP) remained at a deficit of Rs.83.41 billion in the review period against a surplus of Rs.67.63 billion in the same period of the previous year.
Foreign Exchange Reserves
Gross foreign exchange reserves decreased 6.6 percent to Rs.1306.95 billion in mid-September 2021 from Rs.1399.03 billion in mid-July 2021.
In the US Dollar terms, the gross foreign exchange reserves decreased 5.2 percent to 11.14 billion in mid-September 2021 from 11.75 billion in mid-July 2021.
Foreign Exchange Adequacy Indicators
Based on the imports of two months of 2021/22, the foreign exchange reserves of the banking sector is sufficient to cover the prospective merchandise imports of 8.6 months, and merchandise and services imports of 7.8 months.
Domestic Credit
Domestic credit increased 3.0 percent in the review period compared to a decrease of 0.3 percent in the corresponding period of the previous year. On y-o-y basis, domestic credit increased 31.0 percent in mid-September 2021.
Deposit Mobilization
Deposits at Banks and Financial Institutions (BFIs) increased 0.7 percent in the review period compared to an increase of 0.5 percent in the corresponding period of the previous year. On y-o-y basis, deposits at BFIs expanded 21.7 percent in mid-September 2021.
Credit Disbursement
Private sector credit from BFIs increased 5.7 percent in the review period compared to an increase of 0.5 percent in the corresponding period of previous year. On y-o-y basis, credit to the private sector from BFIs increased 33.9 percent in mid-September 2021.
Liquidity Management
In the review period, NRB mopped up Rs.60 billion liquidity of which Rs.28.35 billion was through reverse repo auction and Rs.31.65 billion through deposit collection. In the corresponding period of the previous year, Rs.60 billion liquidity was mopped up through reverse repo auction.
In the review period, NRB injected Rs.422.29 billion liquidity of which Rs.70.0 billion was through repo and Rs. 352.29 billion through standing liquidity facility (SLF).
Refinance, Concessional Loan and Business Continuity Loan
The outstanding amount of refinance provided by NRB remained Rs.118.85 billion in mid-September 2021.
As of mid-September 2021, the outstanding concessional loan is Rs.187.16 billion extended to 1,20,715 borrowers. Of which, Rs.121.06 billion has been extended to 51,272 borrowers for selected commercial agriculture and livestock businesses. Likewise, Rs.62.37 billion loan has been extended to 66,690 women entrepreneurs.Total of 2,753 borrowers have been availed Rs.3.73 billion concessional loan to other sectors.
Business continuity loan has been extended to the Covid-19 affected tourism, cottage, small and medium industries for payment of salaries to workers and employees in line with 'Business Continuity Loan Procedure, 2077'. Under this provision, Rs.1 billion loan has been approved as of mid-September 2021.
Interest Rates
The weighted average 91-day treasury bills rate remained at 3.98 percent in the second month of 2021/22, which was 0.13 percent in the corresponding month a year ago.
Merger and Acquisition
After introduction of merger and acquisition policy aimed at strengthening financial stability, the number of BFIs involved in this process reached 231 as of mid-September 2021. Out of which, the license of 172 BFIs was revoked thereby forming 59 BFIs.
Financial Access
Of the total 753 local levels, commercial banks extended their branches at 750 levels as of mid-September 2021. The number of local levels having commercial bank branches was 747 a year ago.
The total number of BFIs licensed by NRB remained 132 in mid-September 2021. As of mid-September 2021, 27 commercial banks, 18 development banks, 17 finance companies, 69 microfinance financial institutions and 1 infrastructure development bank are in operation. The number of BFIs branches reached 10,882 in mid-September 2021 from 10,683 in mid-July 2021.
Source: NRB, 2021
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