On paper, economy is doing fine

Latest economic data coming from the central bank should provide some succor to the government, though the situation on the ground remains pretty dire. 

According to the recently-published report about the Current Macroeconomic and Financial Situation of Nepal, as of mid-May of the current fiscal (2024-25), the CPI-based Inflation remained within expectations while balance of payment remained at a surplus even as foreign exchange reserves surged.  

Per the report, CPI-based inflation remained 4.61 percent on a year-to-year basis compared to 7.76 percent in the corresponding period last year.  Food and beverage inflation stood at 5.21 percent whereas non-food and service inflation stood at 4.14 percent in the review month.

Under the food and beverage category, year-on-year (y-o-y) price index of spices increased 22.64 percent, vegetable 16.99 percent, pulses and legumes 10.94 percent, cereal grains and their products 7.59 percent and non-alcoholic drinks 6.06 percent in the review month. The y-o-y price index of ghee and oil decreased 10.10 percent. 

Under the non-food and services category, the y-o-y price index of miscellaneous goods and services sub-category increased 12.81 percent, recreation and culture 12.61 percent and education 7.31 percent whereas the y-o-y price index of transportation sub-category decreased 0.33 percent.

The y-o-y consumer price inflation in the Kathmandu Valley, Tarai, Hills and Mountains stood at 4.06 percent, 4.58 percent, 5.33 percent and 4.32 percent against 8.57 percent, 7.68 percent, 7.01 percent and 7.47 percent, respectively a year ago.

A remittance surge

Remittance inflows increased 19.8 percent to Rs 1082.62bn in the review period compared to an increase of 24.2 percent in the same period of the previous year. In US dollar terms, remittance inflows increased 17.7 percent to 8.15bn in the review period compared to an increase of 13.9 percent in the corresponding period of the previous year.

The number of Nepali workers (both institutional and individual) taking first time approval for foreign employment reached 329,422 while the number of those taking approval for renewed entry reached 212,721 against 387,839 and 217,959, respectively in the previous year.

The current account remained at a surplus of Rs 179.48bn in the review period against a deficit of Rs 60.43bn in the same period of the previous year. In US dollar terms, the current account registered a surplus of 1.35bn in the review period against a deficit of 468.3m in the same period last year.

Capital transfer decreased 19.2 percent to Rs 4.78bn and net foreign direct investment (FDI) remained a positive of Rs 6.48bn in the review period against Rs 5.91bn and Rs 2.62bn, respectively in the corresponding period last year.

BoP in surplus

Balance of payments (BoP) did a fine balancing act, remaining at a surplus of Rs 365.16bn in the review period against a surplus of Rs 174.28bn in the same period of the previous year. In US dollar terms, BoP remained at a surplus of 2.75bn in the review period against a surplus of 1.32bn in the same period of the previous year.

Another vital indicator, gross foreign exchange reserves witnessed a healthy growth, increasing 24.2 percent to Rs 1911.86bn  in mid-April 2024 from Rs 1539.36bn in mid-July 2023. In US dollar terms, gross foreign exchange reserves increased 22.7 percent to 14.36bn in mid-April 2024 from 11.71bn in mid-July 2023. 

Of the total foreign exchange reserves, reserves held by NRB increased 25.4 percent to Rs 1688.21bn in mid-April 2024 from Rs 1345.78bn in mid-July 2023. Reserves held by banks and financial institutions (except for NRB) increased 15.5 percent to Rs 223.65bn in mid-April 2024 from
Rs 193.59bn in mid-July 2023. 

The share of Indian currency in total reserves stood at 21.6 percent in mid-April 2024. 

Based on the imports of nine months of 2023-24, the foreign exchange reserves of the banking sector are sufficient to cover the prospective merchandise imports of 15 months, and merchandise and services imports of 12.5 months. The ratio of reserves-to-GDP, reserves-to-imports and reserves-to-M2 stood at 33.5 percent, 104 percent and 28.9 percent, respectively in mid-April 2024. Such ratios were 28.8 percent, 83 percent and 25 percent, respectively in mid-July 2023.

Government expenditure up 

Government’s expenditure amounted to Rs 909.39bn and revenue collection Rs 748.04bn during the review period. Compared to a surge of 18.7 percent in the last fiscal, government expenditure decreased 3.6 percent in the review period. The recurrent expenditure, capital expenditure and financial expenditure amounted to Rs 644.03bn, Rs 97.38bn and Rs 167.99bn in the review period. 

Total revenue mobilization of the government (including the amount to be transferred to provincial and local governments) stood at Rs 748.04bn.  Revenue mobilization recorded a growth of 9.4 percent in the review period in contrast to a decrease of 13.4 percent in the same period of the last fiscal. Tax revenue reached Rs 671.12bn while non-tax revenue stood at Rs 76.93bn. 

Broad money (M2) increased 7.5 percent in the review period compared to an increase of 6.4 percent in the corresponding period of the previous year. On a y-o-y basis, M2 expanded 12.3 percent in mid-April 2024. Net foreign assets (NFA, after adjusting foreign exchange valuation gain/loss) increased Rs 365.16bn  (25.1 percent) in the review period compared to an increase of Rs 174.28 bn (15.1 percent) in the corresponding period of the previous year.  

During the review period, reserve money increased 6.4 percent compared to an increment of 2.5 percent in the corresponding period of the previous year. On a y-o-y basis, the reserves increased 14.6 percent in mid-April 2024.

The total trade deficit decreased 2.8 percent to Rs 1053.42bn during the review period, a dismal figure compared to a decrease of 17.1 percent in the corresponding period of the previous year. The export-import ratio remained at 9.8 percent in the review period like in the corresponding period of the previous year.