Macroeconomic Situation In Nepal

The macroeconomic report of the central bank called Nepal Rastra Bank on the first quarter of this fiscal year says that the government expenditure has risen but the revenue has declined; in addition, the gross foreign exchange reserves, exports, and overall balance of payments (BoP) have fallen.

In the first quarter of this fiscal year, the total government spending has increased by 53.7 per cent to Rs 30.03 billion; it had increased by only 17.7 per cent in the corresponding period last year according to the macro-economic report of Nepal Rastra Bank (NRB).

"In the first three months, regular expenditure rose by 35.6 per cent to Rs 21.32 billion due to the expenditures on the relief activities, salary-rise of the state employees, and on the preparation for the election of constituent assembly in comparison to an increase of 28.5 per cent in the same period last year," stated the report.

The current government budget also has a deficit of Rs 9.40 billion as against the surplus of Rs 352.9 million in the corresponding period last year. The rise in the government expenditure and the low revenue mobilization has resulted in a budget deficit according to the report.

The revenue mobilization has grown by only 18.8 per cent to Rs 19.26 billion in comparison to a higher growth of 26.7 per cent in the corresponding period of the previous year. "The low growth of revenue is due to frequent bandhs (closure) and strikes in Tarai, problems in revenue collection at the border customs and closure of some customs offices as well. The low collection of VAT and income tax has also pulled revenue growth down."

Exports have also declined by 0.6 per cent in comparison to a decrease of 0.3 per cent in the same period last year. Of the total exports, export to India decreased by 0.2 per cent; exports to other countries also declined by 1.2 per cent in contrast to a rise of 7.1 per cent in the same period last year according to the report.

The report stated that overall Balance of Payment recorded a deficit of Rs 5.88 billion. In the corresponding period last year, it has recorded a surplus of Rs 1.13 billion.

The gross foreign exchange reserves stood at Rs 158.08 billion in mid-October 2007, a decline by 4.3 per cent in comparison to Rs 165.11 billion in mid-July 2007. In terms of US dollar, gross foreign exchange reserves declined by 1.8 per cent to $2.50 billion in mid-October 2007. In the same period last year, it had gone up by 1.9 per cent. However, the current level of reserves is sufficient for financing merchandise imports for 9.6 months and merchandise and service imports for 7.5 months.

The government of Nepal purchased Indian currency equivalent to Rs 20.58 billion by $320 million in the review period compared to a purchase of Rs 13.32 billion by $180 million in the same period last year. "The rise in the purchase of Indian Currency was due to widening trade deficit with India in the review period," stated the report. (Source: NRB Report Paints Gloomy Picture - THT Online, Kathmandu, December 1, 2007)