Macroeconomic Summary of First 6 Months: Inflation at 5.26%, Remittances Rises by 25.3%, Foreign Currency Enough to Cover 12.1 Months Import

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

Overall

Nepal Rastra Bank estimated that the inflation remained at 5.26 percent on a y-o-y basis. The gross foreign exchange reserves stood at USD 13.69 billion, whereas, the total imports decreased 3.1 percent, exports decreased 7.2 percent and the trade deficit decreased 2.6 percent.

As of mid-January 2023, the outstanding concessional loan remained at Rs. 155.40 billion extended to 133,174 borrowers. Of which, Rs. 104.73 billion has been extended to 52,872 borrowers for selected commercial agriculture and livestock businesses. Likewise, a Rs. 48.60 billion loan has been extended to 77,918 women entrepreneurs. A total of 2,384 borrowers have availed of Rs. 2.07 billion in concessional loans in other specified sectors.

NEPSE index stood at 2120.62 in mid-January 2024 compared to 2149.39 in mid-January 2023.

Inflation

The y-o-y consumer price inflation moderated to 5.26 percent in mid-January 2024 compared
to 7.26 percent a year ago.

The y-o-y wholesale price inflation stood at 3.36 percent in mid-January 2024 compared to 9.82 percent a year ago. The y-o-y wholesale price index of consumption goods, intermediate goods, and capital goods increased 6.16 percent, 1.99 percent, and 2.71 percent respectively. The y-o-y wholesale price index of construction materials decreased by 1.08 percent in the review month.

Import and Export

During the review period, merchandise exports decreased 7.2 percent to Rs.74.97 billion compared to a decrease of 32 percent in the same period of the previous year. Destination-wise, exports to India decreased by 12.8 percent whereas exports to China and other countries increased by 370.9 percent and 1.3 percent respectively. Exports of zinc sheet, particle board, juice, readymade garments, and ginger among others increased whereas exports of palm oil, soyabean oil, tea, woolen carpet, and rosin, among others decreased.

During the six months of 2023/24, merchandise imports decreased 3.1 percent to Rs.768.17 billion compared to a decrease of 20.7 percent a year ago. Destination-wise, imports from India and other countries decreased 2.4 percent and 25.7 percent respectively while imports from China increased 34 percent. Imports of readymade garments, electrical equipment, M.S. wire rods, bars, and coils, textiles, transport equipment, vehicles, and other vehicle spare parts, among others increased whereas imports of gold, crude soyabean oil, crude palm oil, rice/paddy, petroleum products, among others decreased.

The total trade deficit decreased 2.6 percent to Rs.693.20 billion during the review period. Such a deficit had decreased by 19.2 percent in the corresponding period of the previous year. The export-import ratio declined to 9.8 percent in the review period from 10.2 percent in the corresponding period of the previous year.

Services and Remittance

Net services income remained at a deficit of Rs.36.06 billion in the review period compared to a deficit of Rs.36.22 billion in the same period of the previous year.

Remittance inflows increased 25.3 percent to Rs.733.22 billion in the review period compared to an increase of 24.3 percent in the same period of the previous year. In the US Dollar terms, remittance inflows increased 22.6 percent to 5.52 billion in the review period compared to an increase of 13.9 percent in the same period of the previous year.

Inter-bank Transaction

BFIs inter-bank transactions amounted to Rs. 2574.20 billion on a turnover basis including Rs.2316.98 billion inter-bank transactions among commercial banks and Rs.257.22 billion among other financial institutions (excluding transactions among commercial banks). In the corresponding period of the previous year, such transactions were Rs.2025.12 billion including Rs. 1843.08 billion among commercial banks and Rs.182.04 billion among other financial institutions (excluding transactions among commercial banks).

Price of Oil and Gold

Gross foreign exchange reserves increased 18.0 percent to Rs.1816.57 billion in mid-January 2024 from Rs.1539.36 billion in mid-July 2023. In US dollar terms, the gross foreign exchange reserves increased 16.9 percent to 13.69 billion in mid-January 2024 from 11.71 billion in mid-July 2023.

Of the total foreign exchange reserves, reserves held by NRB increased 18.9 percent to Rs.1600.23 billion in mid-January 2024 from Rs.1345.78 billion in mid-July 2023. Reserves held by banks and financial institutions (except NRB) increased 11.8 percent to Rs.216.35 billion in mid-January 2024 from Rs.193.59 billion in mid-July 2023. The share of Indian currency in total reserves stood at 22.5 percent in mid-January 2024.

Based on the imports of six months of 2023/24, the foreign exchange reserves of the banking sector are sufficient to cover the prospective merchandise imports of 14.5 months and merchandise and services imports of 12.1 months. The ratio of reserves-to-GDP, reserves-to-imports, and reserves-to-M2 stood at 33.8 percent, 100.9 percent, and 27.7 percent respectively in mid-January 2024. Such ratios were 28.6 percent, 83 percent, and 25 percent respectively in mid-July 2023.

Exchange Rate

Nepalese currency vis-à-vis the US dollar depreciated 0.91 percent in mid-January 2024 from mid-July 2023. It had depreciated 1.79 percent in the same period of the previous year. The buying exchange rate per US dollar stood at Rs.132.38 in mid-January 2024 compared to Rs.131.17 in mid-July 2023.

Nepal Government Expenditure and Revenue

According to the Ministry of Finance, Financial Comptroller General Office (FCGO), the total expenditure of the Nepal Government stood at Rs. 566.62 billion during the six months of 2023/24. Compared to the growth of 13.7 percent in the last fiscal year, government expenditure decreased by 1.7 percent in the review period. The recurrent expenditure, capital expenditure, and financial expenditure amounted to Rs.437.38 billion, Rs.49.24 billion, and Rs.80 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. 496.50 billion. Revenue mobilization recorded a growth of 8.2 percent in the review period in contrast to a decrease of 15.3 percent in the same period of last fiscal year. The tax revenue amounted to Rs. 443.55 billion and non-tax revenue Rs. 52.95 billion in the review period.

Cash Balance of Government

Cash Balance at various accounts of the GoN maintained with NRB remained at Rs.236.71 billion (including Provincial Governments and Local Government Account) in mid-January 2024. Such balance was Rs.65.36 billion in mid-July 2023.

Banking

Domestic credit increased by 2.6 percent in the review period compared to an increase of 2.8
percent in the corresponding period of the previous year. On a y-o-y basis, domestic credit increased 8.6 percent in mid-January 2024.

Monetary Sector's claims on the private sector increased by 4.5 percent in the review period compared to an increase of 3.3 percent in the corresponding period of the previous year. On a y-o-y basis, such claims increased 5.8 percent in mid-January 2024.

Deposits at Banks and Financial Institutions (BFIs) increased Rs.377.07 billion (6.6 percent) in the review period compared to an increase of Rs.215.14 billion (4.2 percent) in the corresponding period of the previous year. On a y-o-y basis, deposits at BFIs expanded 14.9 percent in mid-January 2024.

Private sector credit from BFIs increased Rs.192.64 billion (4.0 percent) in the review period compared to an increment of Rs.137.33 billion (3.0 percent) in the corresponding period of the previous year. On a y-o-y basis, credit to the private sector from BFIs increased 4.9 percent in mid-January 2024.

Interest Rates

The average base rates of commercial banks, development banks, and finance companies stood at 9.35 percent, 11.49 percent, and 12.77 percent respectively in the sixth month of 2023/24. The average base rate of commercial banks was 10.91 percent in the corresponding month a year ago.

Balance of Payments

Balance of Payments (BOP) remained at a surplus of Rs.273.52 billion in the review period against a surplus of Rs.92.15 billion in the same period of the previous year. In the US Dollar terms, the BOP remained at a surplus of 2.06 billion in the review period against a surplus of 697.4 million in the same period of the previous year.