Inflation moderates, trade deficit widens

Inflation moderated to 3.85 percent in mid-September compared to 8.19 percent a year ago. 

According to the Current Macroeconomic Situation Report for the first two months of fiscal year 2024/25, food and beverage inflation eased to 5.03 percent, compared to 9.77 percent last year, while non-food and service inflation dropped to 3.19 percent from 7.19 percent. 

Among food items, the price of pulses and legumes saw the highest increase at 10.8 percent, followed by vegetables at 9.84 percent and cereal grains at 9.34 percent. However, the price of spices decreased by 2.69 percent. In the non-food category, the price of miscellaneous goods and services increased by 8.71 percent, while clothing and footwear saw a 6.08 percent rise.

Inflation was highest in Sudurpashchim Province at 5.90 percent, while the Kathmandu Valley recorded an inflation rate of 3.49 percent, according to the report.

Trade deficit widens

Nepal’s trade deficit widened in the review period as imports recorded nominal growth, while exports declined. According to the report, Nepal’s merchandise exports contracted by 5.1 percent to Rs 25.09bn during the first two months of 2024/25, compared to a 7.8 percent decline in the same period last year. While exports to India decreased by 4.5 percent, exports to China plummeted by 45.3 percent. Exports of key products like cardamom and zinc sheets fell, although products like tea and shoes saw growth.

On the import side, merchandise imports increased by 1.1 percent to Rs 262.54bn. Imports from China surged by 11.9 percent, while imports from India fell by 0.1 percent. The trade deficit widened by 1.8 percent to Rs 237.45bn in the two-month period. 

Remittance inflows surge

Remittance inflows saw a strong growth of 15.2 percent to Rs 263.14bn over the first two months of 2024/25. In the first month of the current fiscal year, Nepalis in foreign countries sent home Rs 136.93bn.

In US dollar terms, remittance inflows reached $1.96bn, up from $1.73bn in the same period last year. 

The number of Nepali workers taking foreign employment approval also increased during the review period with 76,485 youths taking first-time approval for foreign employment.

Foreign exchange reserves improve

The gross foreign exchange reserves grew by 5.5 percent to Rs 2,152.53bn as of mid-Sept 2024, up from Rs 2,041.10bn in mid-July 2024. In US dollar terms, reserves increased to $16.04bn. 

The foreign exchange reserves are sufficient to cover 16.8 months of prospective merchandise imports and 13.7 months of merchandise and services imports, according to the report

BoP, current account in surplus

The Balance of Payments (BOP) was in a surplus of Rs 101.77bn in the review period, up from Rs 55.1bn in the corresponding period last year. 

The current account also remained at a surplus of Rs 49.69bn, compared to a surplus of Rs 23.97bn in the previous year.

On the fiscal front, government expenditure increased by 4.9 percent to Rs 137.55bn in the first two months of 2024/25. The recurrent expenditure and capital expenditure remained at Rs 82.99bn and Rs 14.89bn, respectively. While recurrent expenditure fell by 5.3 percent, capital expenditure improved by 82.4 percent compared to last year. Revenue collection recorded a growth of 17.9 percent to Rs 166.39bn during the period. Tax revenue increased by 13.5 percent to Rs 145.19bn, while non-tax revenue surged 71.5 percent to Rs 21.19bn compared to last year.