Nepal’s external sector has shown remarkable resilience, buoyed by improvements in the current account, balance of payments, remittance inflows and foreign exchange reserves over the first two months of the current fiscal year. However, the domestic economy remains sluggish, weighed down by weak internal demand, low credit growth and tepid fiscal performance.
According to the latest macroeconomic update from Nepal Rastra Bank (NRB), the country’s gross foreign exchange reserves surged by 7.6 percent over the first two months of the current fiscal year, reaching Rs 2,881.35bn. In US dollar terms, reserves stood at $20.41bn.
Foreign exchange reserves held by banks and financial institutions (excluding NRB) rose by 13.7 percent, reaching Rs 298.97bn, compared to Rs 263.04bn at mid-July. The share of Indian currency in the total reserves currently stands at 22.5 percent. The reserves of the banking sector are sufficient to cover 19.7 months of merchandise imports and 16 months of both goods and services imports, according to the report.
Balance of payments remained in surplus by Rs 153.68bn as of mid-September, up from a surplus of Rs. 101.77bn in the same period last year. Similarly, the current account recorded a surplus of Rs 130.69bn, more than double last year’s Rs 54.41bn.
Remittance inflows, a key driver of external stability, jumped by 33.1 percent in Nepali rupee terms and 27.6 percent in US dollar terms. In the two-month period, total remittances reached Rs 352.0bn, with Rs 174.67bn received in the second month (during mid-August to mid-September) of the fiscal year alone. Merchandise exports rose sharply by 88.6 percent, while imports increased by a moderate 16.2 percent. Despite the rise in imports, strong remittance and reserve growth have helped maintain external balance.
Inflation, based on the Consumer Price Index (CPI), stood at 1.87 percent year-on-year, reflecting subdued domestic demand and tight liquidity conditions. On the fiscal front, the government’s total expenditure reached Rs 180.17bn, while revenue mobilization amounted to Rs 157.53bn. A visible gap between government's revenue and spending early in the fiscal year does not bode well for the economy. Private sector credit expanded slightly by 0.9 percent. On an annual basis, deposits grew by 12.5 percent and credit by 7.8 percent.
Interest rates have remained low so far in the current fiscal year with the weighted average interbank rate among banks at 2.75 percent, treasury bill rate at 2.13 percent, average deposit rate of commercial banks at 3.96 percent and the average lending rate at 7.66 percent. While Nepal’s external indicators signal a stable macroeconomic footing, economists warn that sluggish domestic activity and weak credit expansion could hinder sustained economic recovery in the coming months.
