Central Bank Unveils Current Macroeconomic and Financial Situation of Nepal Based on Annual Data of 2021/22

Nepal Rastra Bank, the central bank of Nepal, has unveiled the current macroeconomic and financial situation of Nepal based on the annual data of 2021/22.

Overalls

The Nepal Rastra Bank estimated that the inflation remained at 6.32 percent on a y-o-y basis. The gross foreign exchange reserves stood at USD 9.54 billion and the imports increased 24.7 percent whereas, exports increased 41.7 percent.

An amount of Rs. 139.23 billion has been extended to 60,545 borrowers for selected commercial agriculture and livestock business. Likewise, Rs. 71 billion loan has been extended to 84,001 women entrepreneurs. Similarly, the areas most affected due to covid -19, viz tourism, cottages, and others have also been granted a loan of Rs. 974 million as of mid-July, 2022.

NEPSE index stood at 2009.5 in mid-July 2022 compared to 2883.4 in mid-July 2021.

Inflation

The average consumer price inflation stood at 8.08 percent in 2021/22 compared to 4.19 percent a year ago. The y-o-y wholesale price inflation stood at 12.74 percent in mid-July 2022 compared to 8.21 percent a year ago.

The y-o-y consumer price inflation in Nepal in mid-July 2021/22 remained 8.08 percent. Such inflation in India was 6.71 percent in July 2022.

Import and Export

During 2021/22, merchandise exports increased 41.7 percent to Rs. 200.03 billion compared to an increase of 44.4 percent in the previous year. Destination-wise, exports to India and other countries increased by 45.9 percent and 30.4 percent respectively whereas exports to China decreased by 20.4 percent. Exports of soya bean oil, palm oil, threads, woolen carpet, and oil cakes, among others, increased whereas exports of cardamom, tea, wire, toothpaste, among other things decreased in the review period.

During 2021/22, merchandise imports increased 24.7 percent to Rs. 1920.45 billion against an increase of 28.7 percent a year ago. Destination-wise, imports from India, China, and other countries increased by 23.5 percent, 13.2 percent, and 36.3 percent respectively. Imports of petroleum products, medicine, crude palm oil, other machinery parts, and gold, among others, increased whereas imports of M.S. billet, chemical fertilizer, cement, pulses and rice/paddy, among others, decreased in the review period.

The total trade deficit increased 23.0 percent to Rs. 1720.42 billion during the year 2021/22. Such a deficit had increased 27.3 percent in the previous year. The export-import ratio increased to 10.4 percent in the review period from 9.2 percent in the previous year.

Services and Remittance

Net services income remained at a deficit of Rs. 108.12 billion in the review year compared to a deficit of Rs. 72.85 billion in the previous year. Under the service account, travel income increased 346.5 percent to Rs. 32.45 billion in the review year which was Rs. 7.27 billion in the previous year.

Remittance inflows increased 4.8 percent to Rs. 1007.31 billion in the review year against an increase of 9.8 percent in the previous year. In the US Dollar terms, remittance inflows increased 2.2 percent to 8.33 billion in the review year against an increase of 8.2 percent in the previous year. The number of Nepali workers (institutional and individual-new and legalized) taking approval for foreign employment increased significantly to 354,660 in the review year. It had decreased 62.8 percent in the previous year. The number of Nepali workers (Renew entry) taking approval for foreign employment increased 198.5 percent to 282,453 in the review year. It had decreased 46.8 percent in the previous year.

Inter-bank Transaction

The BFI’S interbank transactions amounted to Rs. 3100.35 Billion including Rs. 2784.10 billion interbank transactions among commercial banks and Rs. 316.25 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 50.6 percent to US Dollar 112.26 per barrel in mid-July 2022 from US Dollar 74.53 per barrel a year ago. The price of gold decreased 6.4 percent to US Dollar 1706.15 per ounce in mid-July 2022 from US Dollar 1823.75 per ounce a year ago.

Foreign Exchange Reserves and Adequacy Indicators

Gross foreign exchange reserves decreased 13.1 percent to Rs. 1215.80 billion in mid-July 2022 from Rs. 1399.03 billion in mid-July 2021. In the US dollar terms, the gross foreign exchange reserves decreased 18.9 percent to 9.54 billion in mid-July 2022 from 11.75 billion in mid-July 2021.

Of the total foreign exchange reserves, reserves held by NRB decreased 15.1 percent to Rs.1056.39 billion in mid-July 2022 from Rs.1244.63 billion in mid-July 2021. Reserves held by banks and financial institutions (except NRB) increased 3.2 percent to Rs.159.41 billion in mid-July 2022 from Rs.154.39 billion in mid-July 2021. The share of Indian currency in total reserves stood at 23.6 percent in mid-July 2022.

Based on the imports of 2021/22, the foreign exchange reserves of the banking sector is sufficient to cover the prospective merchandise imports of 7.8 months, and merchandise and services imports of 6.9 months. The ratio of reserves-to-GDP, reserves-to-imports and reserves-to-M2 stood at 25.1 percent, 57.8 percent and 22.1 percent respectively in mid-July 2022. Such ratios were 32.7 percent, 84.7 percent and 27.1 percent respectively in mid-July 2021.

Exchange Rate

Nepalese currency vis-à-vis the US Dollar depreciated 6.64 percent in mid-July 2022 from mid-July 2021. It had appreciated 1.1 percent in the previous year. The buying exchange rate per US Dollar stood at Rs.127.51 in mid-July 2022 compared to Rs. 119.04 in mid-July 2021.

According to Financial Comptroller General Office (FCGO), the total expenditure of the federal government amounted to Rs. 1296.24 billion in 2021/22 compared to Rs. 1196.68 billion a year ago. The recurrent expenditure, capital expenditure and financing expenditure of the federal government amounted to Rs.961.47 billion, Rs.216.37 billion and Rs.118.39 billion respectively in 2021/22.

Revenue collection (including the amount to be transferred to provincial and local governments) stood at Rs.1067.96 billion in 2021/22. Total government revenue was Rs.935.89 billion a year ago. Total resource mobilization (including revenue and other receipts) of the federal government stood at Rs.1116.42 billion in 2021/22.

Banking

Domestic credit increased 14.5 percent in the review year compared to a growth of 27.1 percent in the previous year. Deposits at Banks and Financial Institutions (BFIs) increased 9 percent in the review year compared to a growth of 21.4 percent in the previous year.

Private sector credit from BFIs increased 13.1 percent in the review year compared to a growth of 27.3 percent in the previous year.

Interest Rates

The average base rate of commercial banks increased to 9.54 percent in the review month (mid-July to mid-July) of 2021/22 from 6.86 percent a year ago. The weighted average deposit rate and lending rate of commercial banks stood at 7.41 percent and 11.62 percent respectively in the review month. Such rates were 4.65 percent and 8.43 percent respectively a year ago.