The improvement in the country’s external sector has continued in the sixth month of the current fiscal year. The new macroeconomic report released by the Nepal Rastra Bank (NRB) on Monday shows the country’s forex reserves, balance of payment (BOP), tourism income, and remittance inflow have improved noticeably.
Economists attributed the improvement to the policy efforts of the government and the NRB to control imports and credit expansion. According to them, the challenge now is to maintain the pace of improvement.
Despite the easing of the liquidity situation, businesspersons have not been able to borrow money from banks due to the high-interest rates and restrictive arrangements in the working capital loan guidelines.
As per the NRB report, Nepal’s BOP is at a surplus of Rs 97.10 billion in the first half of FY 2022/23 compared to a deficit of Rs 241.23 billion in the same period of FY 2021/22. The BOP had turned surplus in mid-October, 2022 after a gap of 14 months.
In US Dollar terms, the BOP remained at a surplus of Rs 734.4 million in this fiscal compared to a deficit of 2.02 billion in the same period of the last fiscal.
The country’s forex reserves increased by 10 percent in the first six months of the current fiscal year. Nepal’s forex reserves stood at Rs 1337.29 billion in mid-January, 2023 (Poush) from Rs 1215.80 billion in mid-July 2022.
In US dollar terms, the gross foreign exchange reserves increased by eight percent to Rs 10.30 billion in mid-January 2023 from Rs 9.54 billion in mid-July 2022.
In the report, NRB has stated that the current level of foreign exchange reserves is sufficient to cover merchandise imports for 10.4 months, and merchandise and services imports for 9.1 months.
According to NRB, remittance inflows have increased by 24.3 percent to Rs 585.08 billion in the first six months of the current fiscal year compared to a decrease of 5 percent in the same period of the last fiscal year.
In US Dollar terms, the inflows increased by 13.9 percent to 4.5 billion in the review period against a decrease of 5.7 percent in the same period of the previous year.
Meanwhile. the government’s current account deficit (CAD) has also narrowed significantly in the last six months. As per the NRB report, CAD has now come down to Rs 29.47 billion which was Rs 352.16 billion in the same period of the previous year.
Stating that the country’s external sector is in a comfortable position, economists suggest that the government now needs to increase capital expenditure to take the economy out of the recession. Former governor of NRB Dipendra Bahadur Kshetri said that the current economic situation of the country should be taken cautiously. “While remittance has been the major source of the forex reserve, the country has failed to bring in foreign direct investment,” he said.
Inflation slows down slightly
The NRB report shows consumer inflation has declined slightly in Poush (mid-December to mid-January) compared to Mangsir (mid-November to mid-December). Consumer inflation stood at 7.26 percent in mid-January compared to 7.38 percent in mid-December. Food and beverage inflation stood at 5.62 percent whereas non-food and service inflation rose to 8.57 percent.
Under the food and beverage category, the price of the restaurant and hotel sub-category increased by 15.56 percent, tobacco products by 11.81 percent, cereal grains and their products by 9.56 percent, milk products and eggs by 9.70 percent, and alcoholic drinks by 8.84 percent.
Under the non-food and services category, the price of transportation sub-category increased by 16.43 percent, health by 11.22 percent, recreation & culture by 8.76 percent, and furnishing and household equipment by 8.33 percent.
According to NRB, the rate of inflation in the Kathmandu Valley, Terai, Hill, and Mountain belts surged to 6.93 percent, 7.49 percent, 7.30 percent, and 6.69 percent, respectively.
- BOP is at a surplus of Rs 97.10 billion
- Forex reserves increased by 10 percent to Rs 1337.29 billion
- Remittance inflows have increased by 24.3 percent to Rs 585.08 billion
- Forex reserves is sufficient to cover merchandise imports for 10.4 months, and merchandise and services imports for 9.1 months