Current Macroeconomic and Financial Situation of Nepal
(Based on Three Months’ Data Ending Mid-October, 2021/22)
Major Highlights
> CPI-based Inflation remained 4.24 percent on y-o-y basis.
> Imports increased 63.7 percent and exports increased 109.5 percent.
> Remittances decreased 7.6 percent in NPR terms and 7.7 percent in USD terms.
> Balance of Payments remained at a deficit of Rs.76.13 billion.
> Gross foreign exchange reserves stood at USD 10.98 billion.
> Federal Government spending amounted to Rs.234.52 billion and revenue collection Rs.255.04 billion.
> Broad money (M2) expanded 2.2 percent. On y-o-y basis, M2 expanded 17.9 percent.
> Deposits at BFIs increased 1.2 percent and claims on the private sector increased 7.8 percent. On y-o-y basis, deposits increased 17.2 percent and claims on the private sector 30.8 percent.
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Consumer Price Inflation
The y-o-y consumer price inflation stood at 4.24 percent in the third month of 2021/22 compared to 3.79 percent a year ago. Food and beverage inflation stood at 3.63 percent whereas non-food and service inflation stood at 4.72 percent in the review month.
Wholesale Price Inflation
The y-o-y wholesale price inflation stood at 3.83 percent in the review month compared to 8.26 percent a year ago.
The y-o-y wholesale price of consumption goods, intermediate goods and capital goods increased by 2.11 percent, 4.55 percent and 5.86 percent respectively. The wholesale price of construction materials increased 12.32 percent in the review month.
Salary and Wage Rate Index
The y-o-y salary and wage rate index increased 4.92 percent in the review month. Such a growth rate was 0.92 percent a year ago. In the review month, salary index and wage rate index increased 9.44 and 3.63 percent, respectively.
Inflation in Nepal and India
The y-o-y consumer price inflation in Nepal in the third month of 2020/21 remained 4.24 percent. Such inflation in India was 4.48 percent in October 2021.
Merchandise Trade
During the three months of 2021/22, merchandise exports increased 109.5 percent to Rs.65.05 billion compared to an increase of 14.3 percent in the same period of the previous year.
During the three months of 2021/22, merchandise imports increased 63.7 percent to Rs.478.52 billion against a decrease of 12.7 percent a year ago.
Total trade deficit increased 58.3 percent to Rs.413.47 billion during the three months of 2021/22. Such a deficit had contracted 15.1 percent in the corresponding period of the previous year. The export-import ratio increased to 13.6 percent in the review period from 10.6 percent in the corresponding period of the previous year.
Services
Net services income remained at a deficit of Rs.23.79 billion in the review period compared to a deficit of Rs.11.94 billion in the same period of the previous year.
Under the service account, travel income increased 183.8 percent to Rs.4.20 billion in the review period which was Rs.1.48 billion in the same period of the previous year.
Under the service account, travel payments increased 187.1 percent to Rs.15.26 billion, including Rs.8.92 billion for education. Such payments were Rs.5.32 billion and Rs.4.43 billion respectively in the same period of the previous year.
Remittances
Remittance inflows decreased 7.6 percent to Rs.239.32 billion in the review period against an increase of 12.7 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 66,316 in the review period. It had decreased 96.8 percent in the same period of the previous year. The number of Nepali workers (Renew entry) taking approval for foreign employment increased significantly to 34,823 in the review period. It had decreased 78.6 percent in the same period of the previous year.
Current Account and Balance of Payments
The current account remained at a deficit of Rs.151.70 billion in the review period against a surplus of Rs.33.38 billion in the same period of the previous year.
In the review period, capital transfer decreased 45.9 percent to Rs.1.92 billion but net foreign direct investment (FDI) increased 73.5 percent to Rs.5.07 billion. In the same period of the previous year, capital transfer and net FDI amounted to Rs.3.56 billion and Rs.2.92 billion respectively.
Balance of Payments (BOP) remained at a deficit of Rs.76.14 billion in the review period against a surplus of Rs.101.09 billion in the same period of the previous year.
Foreign Exchange Reserves
Gross foreign exchange reserves decreased 5.7 percent to Rs.1319.32 billion in mid-October 2021 from Rs.1399.02 billion in mid-July 2021. In the US Dollar terms, the gross foreign exchange reserves decreased 6.5 percent to 10.98 billion in mid-October 2021 from 11.75 billion in mid-July 2021.
Foreign Exchange Adequacy Indicators
Based on the imports of three 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.
Expenditure and Revenue
In the review period, total expenditure of the federal government according to data of Financial Comptroller General Office (FCGO), Ministry of Finance, stood at Rs.234.52 billion. The recurrent expenditure, capital expenditure and financing expenditure amounted to Rs.186.52 billion, Rs.14.89 billion and Rs.33.11 billion respectively in the review period.
In the review period, revenue mobilization (including the amount to be transferred to provincial and local governments) stood at Rs.255.04 billion. The tax revenue and non tax revenue amounted Rs.229.08 billion and Rs.25.96 billion respectively in the review period.
Domestic Credit
Domestic credit increased 5.1 percent in the review period compared to an increase of 2.8 percent in the corresponding period of the previous year. On y-o-y basis, domestic credit increased 29.7 percent in mid-October 2021.
Deposit Mobilization
Deposits at Banks and Financial Institutions (BFIs) increased 1.2 percent in the review period compared to an increase of 4.9 percent in the corresponding period of the previous year. On y-o-y basis, deposits at BFIs expanded 17.2 percent in mid-October 2021.
Credit Disbursement
Private sector credit from BFIs increased 7.7 per cent in the review period compared to an increase of 4.0 percent in the corresponding period of previous year. On y-o-y basis, credit to the private sector from BFIs increased 31.7 percent in mid-October 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.1008.17 billion liquidity of which Rs.185.50 billion was through repo auction and Rs. 822.68 billion through standing liquidity facility (SLF).
Refinance, Concessional Loan and Business Continuity Loan
The outstanding amount of refinance provided by NRB remained Rs.119.35 billion in mid-October 2021.
As of mid-October 2021, the outstanding concessional loan is Rs.198.92 billion extended to 1,29,680 borrowers. Of which, Rs.126.81 billion has been extended to 53,785 borrowers for selected commercial agriculture and livestock businesses. Likewise, Rs. 68.32 billion loan has been extended to 73,078 women entrepreneurs.Total of 2,817 borrowers have been availed Rs. 3.80 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, 2020'.Under this provision, Rs. 1.05 billion loan has been approved as of mid-October 2021.
Interest Rates
The weighted average 91-day treasury bills rate remained at 4.86 percent in the third month of 2021/22, which was 0.63 percent in the corresponding month a year ago. The weighted average interbank transaction rate among commercial banks, which was 0.11 percent a year ago, increased to 4.95 percent in the review month. The average inter-bank rate of BFIs which is considered as operating target of monetary policy, stood 4.95 percent in the review month. Such a rate was 0.17 percent 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-October 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 to 750 local levels as of mid-October 2021. The number of local levels having commercial bank branches was 748 a year ago.
The total number of BFIs licensed by NRB remained 132 in mid-October 2021. As of mid-October 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 11,039 in mid-October 2021 from 10,683 in mid-July 2021.
(Source: NRB, 2021)
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