Current Macroeconomic and Financial Situation of Nepal
(Based on Seven Months’ Data Ending Mid-February, 2021/22)
Major Highlights
> CPI-based Inflation remained 5.97 percent on y-o-y basis.
> Imports increased 42.8 percent and exports increased 88.3 percent.
> Remittances decreased 4.9 percent in NPR terms and 5.8 percent in USD terms.
> Balance of Payments remained at a deficit of Rs.247.03 billion.
> Gross foreign exchange reserves stood at USD 9.75 billion.
> Federal Government spending amounted to Rs.591.02 billion and revenue collection Rs.613.41 billion.
> Broad money (M2) increased 2.8 percent. On y-o-y basis, M2 increased 13.5 percent.
> Deposits at BFIs increased 3.6 percent and private sector credit increased 12.3 percent. On y-o-y basis, deposits increased 14.6 percent and private sector credit 25.3 percent.
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Consumer Price Inflation
The y-o-y consumer price inflation stood at 5.97 percent in the seventh month of FY 2021/22 compared to 2.70 percent a year ago. Food and beverage inflation stood at 6.00 percent whereas non-food and service inflation stood at 5.96 percent in the review month.
Wholesale Price Inflation
> The y-o-y wholesale price inflation stood at 10.34 percent in the review month compared to 6.12 percent a year ago.
> The y-o-y wholesale price of consumption goods, intermediate goods and capital goods increased 12.09 percent, 9.92 percent and 7.00 percent respectively. The y-o-y wholesale price of construction materials increased 16.61 percent in the review month.
Salary and Wage Rate Index
Merchandise Trade
> During the seven months of 2021/22, merchandise exports increased 88.3 percent to Rs.131.66 billion compared to an increase of 7.6 percent in the same period of the previous year
> During the seven months of 2021/22, merchandise imports increased 42.8 percent to Rs.1147.46 billion compared to an increase of 0.01 percent a year ago.
> Total trade deficit increased 38.4 percent to Rs.1015.81 billion during the seven months of 2021/22. Such a deficit had contracted 0.7 percent in the corresponding period of the previous year. The export-import ratio increased to 11.5 percent in the review period from 8.7 percent in the corresponding period of the previous year.
Services
> Net services income remained at a deficit of Rs.55.59 billion in the review period compared to a deficit of Rs.35.37 billion in the same period of the previous year.
> Under the service account, travel income increased 192.0 percent to Rs.11.35 billion in the review period which was Rs.3.89 billion in the same period of the previous year.
> Under the service account, travel payments increased 91.6 percent to Rs.36.30 billion, including Rs.22.60 billion for education. Such payments were Rs.18.95 billion and Rs.15.67 billion respectively in the same period of the previous year.
Remittances
> Remittance inflows decreased 4.9 percent to Rs.540.12 billion in the review period against an increase of 10.9 percent in the same period of the previous year. In the US Dollar terms, remittance inflows decreased 5.8 percent to 4.53 billion in the review period against an increase of 6.8 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 200,102 in the review period. It had decreased 85.4 percent in the same period of the previous year. The number of Nepali workers (Renew entry) taking approval for foreign employment increased 265.9 percent to 152,325 in the review period. It had decreased 73.1 percent in the same period of the previous year.
> Net transfer decreased 4.2 percent to Rs.603.73 billion in the review period. Such a transfer had increased 8.9 percent in the same period of the previous year.
Current Account and Balance of Payments
> The current account remained at a deficit of Rs.413.86 billion in the review period compared to a deficit of Rs.104.39 billion in the same period of the previous year.
> IIn the review period, capital transfer decreased 19.4 percent to Rs.6.31 billion and net foreign direct investment (FDI) increased 80.6 percent to Rs.16.29 billion. In the same period of the previous year, capital transfer and net FDI amounted to Rs.7.83 billion and Rs.9.02 billion respectively.
> Balance of Payments (BOP) remained at a deficit of Rs.247.03 billion in the review period against a surplus of Rs.97.36 billion in the same period of the previous year.
Foreign Exchange Reserves
Gross foreign exchange reserves decreased 16.2 percent to Rs.1173.02 billion in mid-February 2022 from Rs.1399.03 billion in mid-July 2021. In the US Dollar terms, the gross foreign exchange reserves decreased 17.0 percent to 9.75 billion in mid-February 2022 from 11.75 billion in mid-July 2021.
Foreign Exchange Adequacy Indicators
Based on the imports of seven months of 2021/22, the foreign exchange reserves of the banking sector is sufficient to cover the prospective merchandise imports of 7.4 months, and merchandise and services imports of 6.7 months.
Price of Oil and Gold
The price of oil (Crude Oil Brent) in the international market increased 56.1 percent to US Dollar 97.50 per barrel in mid-February 2022 from US Dollar 62.47 per barrel a year ago. The price of gold increased 0.8 percent to US Dollar 1831.15 per ounce in mid-February 2022 from US Dollar 1816.35 per ounce a year ago.
Expenditure and Revenue
> During the seven months of 2021/22, total expenditure of the federal government according to data of Financial Comptroller General Office (FCGO), Ministry of Finance, stood at Rs.591.02 billion. The recurrent expenditure, capital expenditure and financial expenditure amounted to Rs.475.62 billion, Rs.60.79 billion and Rs.54.61 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.613.41 billion. The tax revenue and non tax revenue amounted Rs.560.84 billion and Rs.52.57 billion respectively in the review period.
Cash Balance
Balance at various accounts of the GoN maintained with NRB remained Rs.304.42 billion (including Provincial government and Local Authorities Account) in mid-Feb 2022 compared to Rs.200.18 billion in mid-July 2021.
Money Supply
Broad money (M2) increased 2.8 percent in the review period compared to the growth of 10.3 percent in the corresponding period of the previous year. On y-o-y basis, M2 expanded 13.5 percent in mid-February 2022.
Domestic Credit
Domestic credit increased 9.3 percent in the review period compared to an increase of 10.8 percent in the corresponding period of the previous year. On y-o-y basis, domestic credit increased 25.6 percent in mid-February 2022.
Deposit Mobilization
Deposits at Banks and Financial Institutions (BFIs) increased 3.6 percent in the review period compared to an increase of 9.8 percent in the corresponding period of the previous year. On y-o-y basis, deposits at BFIs expanded 14.6 percent in mid-February 2022.
Credit Disbursement
Private sector credit from BFIs increased 12.3 percent in the review period compared to an increase of 14.1 percent in the corresponding period of previous year. On y-o-y basis, credit to the private sector from BFIs increased 25.3 percent in mid-February 2022.
Liquidity Management
> During the review period, in the first month, 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, it was Rs.283.29 billion liquidity of which Rs.89.54 billion was through reverse repo and Rs. 193.75 billion through deposit collection auction.
> In the review period, NRB injected Rs.4086.04 billion liquidity of which Rs.342.93 billion was through repo, Rs.27.22 billion through outright purchase and Rs.3715.90 billion through standing liquidity facility (SLF).
Refinance, Concessional Loan and Business Continuity Loan
> The outstanding amount of refinance provided by NRB remained Rs.153.69 billion in mid-February 2022.
> As of mid-February 2022, the outstanding concessional loan is Rs.214.78 billion extended to 142,344 borrowers. Of which, Rs. 136.83 billion has been extended to 58,269 borrowers for selected commercial agriculture and livestock businesses. Likewise, Rs.74.19 billion loan has been extended to 81,227 women entrepreneurs. Total of 2,848 borrowers have been availed Rs.3.76 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.1.13 billion loan has been approved as of mid-February 2022.
Inter-bank Transaction
> In the review period, BFIs' interbank transactions amounted Rs.2130.21 billion including Rs.1893.28 billion inter-bank transactions among commercial banks and Rs.236.93 billion among other financial institutions(excluding transactions among commercial banks).
> In the corresponding period of previous year, such transactions was Rs.492.33 billion including Rs.363.25 billion among commercial banks and Rs.129.08 billion among other financial institutions (excluding transactions among commercial banks).
Interest Rates
> The weighted average 91-day treasury bills rate remained at 5.32 percent in the seventh month of 2021/22, which was 1.13 percent in the corresponding month a year ago. The weighted average interbank transaction rate among commercial banks, which was 0.58 percent a year ago, increased to 4.78 percent in the review month. The weighted average inter-bank rate of BFIs which is considered as operating target of monetary policy, stood 4.80 percent in the review month. Such a rate was 0.59 percent a year ago.
> The average base rate of commercial banks stood 8.53 percent in the seventh month of 2021/22 which was 6.97 percent a year ago. Weighted average deposit rate and lending rate of commercial banks stood at 6.49 percent and 10.31 percent respectively in the review month. Such rates were 4.86 percent and 8.89 percent respectively 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 239 as of mid-February 2022. Out of which, the license of 177 BFIs was revoked thereby forming 62 BFIs.
Financial Access
> Of the total 753 local levels, commercial banks extended their branches at 750 levels as of mid-February 2022. The number of local levels having commercial bank branches was 749 a year ago.
> The total number of BFIs licensed by NRB remained 128 in mid-February 2022. As of mid-February 2022, 27 commercial banks, 17 development banks, 17 finance companies, 66 microfinance financial institutions and 1 infrastructure development bank are in operation. The number of BFIs branches reached 11,255 in mid-February 2022 from 10,683 in mid-July 2021.
(Source: NRB, March 2022)
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