Current Macroeconomic and Financial Situation of Nepal
(Based on Ten Months’ Data Ending Mid-May, 2021/22)
Major Highlights
> CPI-based Inflation remained 7.87 percent on y-o-y basis.
> Imports increased 28.0 percent, exports increased 59.8 percent and trade deficit increased 24.9 percent.
> Remittances increased 0.2 percent in NPR terms and decreased 1.6 percent in USD terms.
> Balance of Payments remained at a deficit of Rs.288.50 billion.
> Gross foreign exchange reserves stood at USD 9.28 billion.
> Federal Government spending amounted to Rs.908.86 billion and revenue collection Rs.865.70 billion.
> Broad money (M2) increased 3.8 percent. On y-o-y basis, M2 increased 9.6 percent.
> Deposits at BFIs increased 5.0 percent and private sector credit increased 13.4 percent. On y-o-y basis, deposits increased 11.5 percent and private sector credit 16.6 percent.
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Consumer Price Inflation
The y-o-y consumer price inflation stood at 7.87 percent in the tenth month of FY 2021/22 compared to 3.65 percent a year ago. Food and beverage inflation stood at 7.13 percent whereas non-food and service inflation stood at 8.45 percent in the review month. The average monthly y-o-y inflation for 10 months recorded 5.84 percent.
Wholesale Price Inflation
> The y-o-y wholesale price inflation stood at 16.06 percent in the review month compared to 8.05 percent a year ago. The average monthly y-o-y wholesale price inflation for 10 months was 8.71 percent.
> The y-o-y wholesale price of consumption goods, intermediate goods and capital goods increased by 22.20 percent, 13.97 percent and 7.97 percent respectively. The y-o-y wholesale price of construction materials increased by 26.82 percent in the review month
Salary and Wage Rate Index
Inflation in Nepal and India
Merchandise Trade
> During the ten months of 2021/22, merchandise exports increased 59.8 percent to Rs.173.35 billion compared to an increase of 32.2 percent in the same period of the previous year.
> During the ten months of 2021/22, merchandise imports increased 28.0 percent to Rs.1604.65 billion compared to an increase of 22.3 percent a year ago.
> Total trade deficit increased 24.9 percent to Rs.1431.30 billion during the ten months of 2021/22. Such a deficit had increased 21.5 percent in the corresponding period of the previous year. The export-import ratio increased to 10.8 percent in the review period from 8.6 percent in the corresponding period of the previous year.
Services
> Net services income remained at a deficit of Rs.89.31 billion in the review period compared to a deficit of Rs.59.97 billion in the same period of the previous year.
> Net services income remained at a deficit of Rs.89.31 billion in the review period compared to a deficit of Rs.59.97 billion in the same period of the previous year
> Under the service account, travel payments increased 143.4 percent to Rs.72.08 billion, including Rs.51.34 billion for education. Such payments were Rs.29.62 billion and Rs.22.64 billion respectively in the same period of the previous year.
Remittances
> Remittance inflows increased 0.2 percent to Rs.811.79 billion in the review period compared to 19.2 percent in the same period of the previous year. In the US Dollar terms, remittance inflows decreased 1.6 percent to 6.76 billion in the review period against an increase of 16.1 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 278,298 in the review period. It had decreased 68.4 percent in the same period of the previous year. The number of Nepali workers (Renew entry) taking approval for foreign employment increased 185.5 percent to 230,466 in the review period. It had decreased 54.0 percent in the same period of the previous year.
> Net transfer increased 0.01 percent to Rs.903.62 billion in the review period. Such a transfer had increased 17.1 percent in the same period of the previous year.
Current Account and Balance of Payments
> The current account remained at a deficit of Rs.547.36 billion in the review period compared to a deficit of Rs.251.29 billion in the same period of the previous year. In the US Dollar terms, the current account registered a deficit of 4.57 billion in the review period compared to deficit of 2.14 billion in the same period last year.
> In the review period, capital transfer decreased 41.3 percent to Rs.7.99 billion and net foreign direct investment (FDI) increased 18.2 percent to Rs.16.65 billion. In the same period of the previous year, capital transfer and net FDI amounted to Rs.13.62 billion and Rs.14.08 billion respectively..
> Balance of Payments (BOP) remained at a deficit of Rs.288.50 billion in the review period against a surplus of Rs.7.75 billion in the same period of the previous year. In the US Dollar terms, the BOP remained at a deficit of 2.41 billion in the review period against a surplus of 55.4 million in the same period of the previous year.
Foreign Exchange Reserves
Gross foreign exchange reserves decreased 18.0 percent to Rs.1146.88 billion in midMay 2022 from Rs.1399.03 billion in mid-July 2021. In the US dollar terms, the gross foreign exchange reserves decreased 21.1 percent to 9.28 billion in mid-May 2022 from 11.75 billion in mid-July 2021.
Foreign Exchange Adequacy Indicators
Based on the imports of ten months of 2021/22, the foreign exchange reserves of the banking sector is sufficient to cover the prospective merchandise imports of 7.34 months, and merchandise and services imports of 6.57 months. The ratio of reserves-to-GDP, reserves-to-imports and reserves-toM2 stood at 23.6 percent, 54.8 percent and 21.4 percent respectively in mid-May 2022. Such ratios were 32.7 percent, 84.7 percent and 27.1 percent respectively in mid-July 2021.
Price of Oil and Gold
The price of oil (Crude Oil Brent) in the international market increased 61.9 percent to US dollar 112.12 per barrel in mid-May 2022 from US dollar 69.24 per barrel a year ago. The price of gold decreased 1.4 percent to US dollar 1811.55 per ounce in mid-May 2022 from US dollar 1838.10 per ounce a year ago.
Expenditure and Revenue
> During the ten 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.908.86 billion. The recurrent expenditure, capital expenditure and financial expenditure amounted to Rs.716.87 billion, Rs.118.27 billion and Rs.73.71 billion respectively in the review period
> IIn the review period, revenue mobilization (including the amount to be transferred to provincial and local governments) stood at Rs.865.70 billion. The tax revenue and non tax revenue amounted Rs.799.66 billion and Rs.66.04 billion respectively in the review period.
Cash Balance
Balance at various accounts of the GoN maintained with NRB remained Rs.325.15 billion (including Provincial government and Local Authorities Account) in mid-May 2022 compared to Rs.198.76 billion in mid-July 2021.
Money Supply
Broad money (M2) increased 3.8 percent in the rev iew period compared to a growth of 15.4 percent in the corresponding period of the previous year. On y-o-y basis, M2 expanded 9.6 percent in mid-May 2022.
Domestic Credit
Domestic credit increased 11.6 percent in the review period compared to an increase of 19.4 percent in the corresponding period of the previous year. On y-o-y basis, domestic credit increased 18.9 percent in mid-May 2022.
Deposit Mobilization
Deposits at Banks and Financial Institutions (BFIs) increased 5 percent in the review period compared to an increase of 14.3 percent in the corresponding period of the previous year. On y-o-y basis, deposits at BFIs expanded 11.5 percent in mid-May 2022.
Credit Disbursement
Private sector credit from BFIs increased 13.4 perc ent in the review period compared to an increase of 23.8 percent in the corresponding period of previous year. On y-o-y basis, credit to the private sector from BFIs increased 16.6 percent in midMay 2022.
Liquidity Management
> During 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, liquidity of Rs.303.29 billion was absorbed of which Rs.109.54 billion was through reverse repo and Rs. 193.75 billion through deposit collection auction.
> In the review period, NRB injected Rs.7402.65 billion liquidity on turnover basis of which Rs.430.77 billion was through repo, Rs.55.92 billion through outright purchase and Rs.6915.96 billion through standing liquidity facility (SLF).
Refinance, Concessional Loan and Business Continuity Loan
> The outstanding amount of refinance provided by NRB remained Rs.114.96 billion in mid-May 2022.
> As of mid-May 2022, the outstanding concessional loan remained at Rs.216.33 billion extended to 146,382 borrowers. Of which, Rs.139.55 billion has been extended to 60,163 borrowers for selected commercial agriculture and livestock businesses. Likewise, Rs.73.09 billion loan has been extended to 83,379 women entrepreneurs. Total of 2,840 borrowers have been availed Rs.3.69 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-May 2022.
Inter-bank Transaction
> In the review period, BFIs' interbank transactions amounted Rs.2739.87 billion including Rs.2454.78 billion inter-bank transactions among commercial banks and Rs.285.09 billion among other financial institutions(excluding transactions among commercial banks).
> In the corresponding period of previous year, such transactions was Rs.1320.97 billion including Rs.1156 billion among commercial banks and Rs.164.96 billion among other financial institutions (excluding transactions among commercial banks).
Interest Rates
> The weighted average 91-day treasury bills rate remained at 8.30 percent in the tenth month of 2021/22, which was 2.28 percent in the corresponding month a year ago. The weighted average inter-bank transaction rate among commercial banks, which was 4.12 percent a year ago, increased to 6.99 percent in the review month. The weighted average inter-bank rate of BFIs stood 7 percent in the review month. Such a rate was 4.12 percent a year ago.
> The average base rate of commercial banks stood 9.30 percent in the tenth month of 2021/22, which was 6.83 percent a year ago. Weighted average deposit rate and lending rate of commercial banks stood at 7.25 percent and 11.42 percent respectively in the review month. Such rates were 4.81 percent and 8.53 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 243 as of mid-May 2022. Out of which, the license of 177 BFIs was revoked thereby forming 64 BFIs.
Financial Access
> Of the total 753 local levels, commercial banks extended their branches at 750 levels as of mid-may 2022 same as a year ago.
> The total number of BFIs licensed by NRB remained 127 in mid-May 2022. As of mid-May 2022, 27 commercial banks, 17 development banks, 17 finance companies, 65 microfinance financial institutions and 1 infrastructure development bank are in operation. The number of BFIs branches reached 11,453 in mid-May 2022 from 10,683 in mid-July 2021.
(Source: NRB, June 2022)
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