2 Months Macro Economic Indicators: Inflation at 8.19%; Remittance Upsurged by 22.1%; Foreign Reserve Sufficient to Cover 10.3 Months Import

Nepal Rastra Bank, the central bank of Nepal, has unveiled the current macroeconomic and financial situation of Nepal based on the first two month's data ending mid-September of 2023/24.

Overall

Nepal Rastra Bank estimated that the inflation remained at 8.19 percent on a y-o-y basis. The gross foreign exchange reserves stood at USD 12.01 billion, whereas, the total imports and exports decreased by 5.1 percent and 5.1 percent and the trade deficit decreased by 4.7 percent.

As of mid-September 2023, the outstanding concessional loan remained at Rs. 195.62 billion extended to 144,758 borrowers. Of which, Rs. 136.03 billion has been extended to 59,780 borrowers for selected commercial agriculture and livestock businesses. Likewise, a Rs. 56.58 billion loan has been extended to 82,323 women entrepreneurs. A total of 2,655 borrowers have availed of Rs. 3.01 billion concessional loans in other specified sectors.

NEPSE index stood at 1964.9 in mid-September 2023 compared to 1910.4 in mid-September 2022.

Inflation

The y-o-y consumer price inflation stood at 8.19 percent in mid-September 2023 compared to 8.64 percent a year ago.

The y-o-y wholesale price inflation stood at 4.78 percent in mid-September 2023 compared to 14.0 percent a year ago. The y-o-y wholesale price of consumption goods, intermediate goods, and capital goods increased 8.23 percent, 3.14 percent, and 2.80 percent respectively. The y-o-y wholesale price of construction materials decreased by 0.03 percent in the review month.

Import and Export

During the two months of 2023/24, merchandise exports decreased 7.8 percent to Rs.26.45 billion compared to a decrease of 34.9 percent in the same period of the previous year. Destination-wise, exports to India decreased by 15.6 percent whereas exports to China and other countries increased by 338.5 percent and 5.1 percent respectively. Exports of zinc sheet, cardamom, particle board, polyester yarn & thread, and juice, among others increased whereas exports of palm oil, soyabean oil, jute goods, woolen carpet, medicine (ayurvedic), among others decreased in the review period.

During the two months of 2023/24, merchandise imports decreased 5.1 percent to Rs.259.75 billion compared to a decrease of 13.0 percent a year ago. Destination-wise, imports from India and other countries decreased 5.2 percent and 21.5 percent respectively while imports from China increased 25.4 percent. Imports of M.S. wire rods, bars, coils and others, readymade garments, electrical equipment, textiles, and electrical goods, among others increased whereas imports of petroleum products, crude soyabean oil, crude palm oil, medicine, M.S. billet, among others decreased in the review period.

The total trade deficit decreased 4.7 percent to Rs.233.30 billion during the two months of 2023/24. Such a deficit had decreased by 9.4 percent in the corresponding period of the previous year. The export-import ratio decreased to 10.2 percent in the review period from 10.5 percent in the corresponding period of the previous year.

Services and Remittance

Net services income remained at a deficit of Rs.25.34 billion in the review period compared to a deficit of Rs.19.26 billion in the same period of the previous year.

Remittance inflows increased 22.1 percent to Rs.228.37 billion in the review period compared to an increase of 19.8 percent in the same period of the previous year. In US Dollar terms, remittance inflows increased 17.7 percent to 1.73 billion in the review period compared to an increase of 11.3 percent in the same period of the previous year.

Inter-bank Transaction

BFI interbank transactions amounted to Rs.1080.80 billion on a turnover basis including Rs. 924.42 billion inter-bank transactions among commercial banks and Rs.156.38 billion among other financial institutions (excluding transactions among commercial banks). In the corresponding period of the previous year, such transactions were Rs.647.58 billion including Rs.580.52 billion among commercial banks and Rs.67.06 billion among other financial institutions (excluding transactions among commercial banks).

Price of Oil and Gold

The price of oil (Crude Oil Brent) in the international market increased 6.8 percent to US dollar 95.55 per barrel in mid-September 2023 from US dollar 89.43 per barrel a year ago. The price of gold increased 15.8 percent to US dollar 1927.70 per ounce in mid-September 2023 from US dollar 1664.65 per ounce a year ago.

Foreign Exchange Reserves and Adequacy Indicators

Gross foreign exchange reserves increased 3.9 percent to Rs.1598.9 billion in mid-September 2023 from Rs.1539.36 billion in mid-July 2023. In US dollar terms, the gross foreign exchange reserves increased 2.6 percent to 12.01 billion in mid-September 2023 from 11.71 billion in mid-July 2023.

Of the total foreign exchange reserves, reserves held by NRB increased 4.5 percent to Rs.1406.52 billion in mid-September 2023 from Rs.1345.78 billion in mid-July 2023. Reserves held by banks and financial institutions (except NRB) decreased 0.6 percent to Rs.192.38 billion in mid-September 2023 from Rs.193.59 billion in mid-July 2023. The share of Indian currency in total reserves stood at 21.7 percent in mid-September 2023.

Based on the imports of two months of 2023/24, the foreign exchange reserves of the banking sector are sufficient to cover the prospective merchandise imports of 12.6 months and merchandise and services imports of 10.3 months. The ratio of reserves-to-GDP, reserves-to-imports, and reserves-to-M2 stood at 29.7 percent, 86 percent, and 26.2 percent respectively in mid-September 2023. Such ratios were 28.6 percent, 83.0 percent, and 25.1 percent respectively in mid-July 2023.

Exchange Rate

Nepalese currency vis-à-vis the US dollar depreciated 1.2 percent in mid-September 2023 from mid-July 2023. It had appreciated 0.23 percent in the same period of the previous year. The buying exchange rate per US dollar stood at Rs.132.80 in mid-September 2023 compared to Rs.131.17 in mid-July 2023.

According to the Financial Comptroller General Office, the total expenditure of the Nepal Government stood at Rs.131.14 billion during the two months of 2023/24. The recurrent expenditure, capital expenditure, and financial expenditure amounted to Rs.87.66 billion, Rs.8.16 billion, and Rs.35.31 billion respectively in the review period.

In the review period, the total revenue mobilization of the Nepal Government (including the amount to be transferred to provincial and local governments) stood at Rs.141.08 billion. The tax revenue amounted Rs. 127.96 billion and non-tax revenue Rs.13.12 billion in the review period

Banking

Domestic credit decreased 0.4 percent in the review period compared to an increase of 0.6 percent in the corresponding period of the previous year. The Monetary Sector's claims on the private sector increased by 1.7 percent in the review period same as in the corresponding period of the previous year.

Interest Rates

The average base rates of commercial banks, development banks, and finance companies stood at 10.14 percent, 12.12 percent, and 13.52 percent respectively in the second month of 2023/24. The average base rate of commercial banks was 10.01 percent in the corresponding month a year ago.

Balance of Payments

Balance of Payments (BOP) remained at a surplus of Rs.53.61 billion in the review period against a deficit of Rs.20.81 billion in the same period of the previous year. In US Dollar terms, the BOP remained at a surplus of 405.6 million in the review period against a deficit of 163.4 million in the same period of the previous year