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Central Bank’s Report on Economy of Nepal
By KTM Metro Reporter in Kathmandu
On Sunday, November 30, 2008, the Central Bank of Nepal called Nepal Rastra Bank released a report on the economic situation in Nepal for the period of three months from mid-July to mid-October 2008. The report says that:
The broad money (M2) has expanded by 5.0 percent in comparison to 5.5 percent in the corresponding period of the previous year because of the deceleration in net claims on government and the acceleration in net non-monetary liabilities. The narrow money (M1) also declined by 0.4 percent due to the reduction in the growth of government expenditure compared to the revenue collection.
Net foreign assets (NFA) have increased substantially following the higher inflow of remittances and the increase in the foreign assistance. After adjusting foreign exchange valuation gain/loss, NFA increased by 4.5 percent to Rs 7.7 billion against the decline of 4.2 percent to Rs 5.6 billion in the corresponding period of the previous year.
Domestic credit to the non-government financial institutions has increased to Rs 1.15 billion compared to Rs 276 million in the same period of previous year because of the higher credit flow to finance companies and other financial institutions from the commercial banks. However, the claims on government financial institutions declined by 6.7 percent in the review period (from mid-July to mid-October 2008).
State-owned companies such as Janakpur Cigarette Factory Ltd, Nepal Oil Corporation, Nepal Airlines Corporation, Janak Education Material Center Ltd and Nepal Electricity Authority used the higher credit causing increased claims on non-financial government companies by 6.2 percent to Rs 349.5 million.
Commercial banks have increased deposits by Rs 25.2 billion (6.0 percent) reaching to Rs 446.7 billion compared to the total deposit increased by Rs 13.9 billion (4.1 percent) in the corresponding period of the previous year. Similarly, credit to the private sector has increased by Rs 29.8 billion (8.9 percent) compared to the increase by Rs 18.8 billion (7.1 Percent) in the corresponding period of the previous year. In the review period (from mid-July to mid-October 2008)., credit provided to iron and steel based industries of production sector, transportation equipment production and fittings, real estate, wholesale and retail business, services and consumer sectors remained higher; however, credit to the construction sector increased at a lower rate. The higher credit flow relative to the deposit mobilization of commercial banks led to the increase in the credit-deposit ratio from 82.6 percent in mid-July 2007 to 85.1 percent in mid-Oct 2008.
The substantial inflow of remittances in the foreign exchange market led the Central Bank to buy 420.1 million US dollar for Rs 30.7 billions from commercial banks through foreign exchange intervention in comparison to 217.5 million US dollar for Rs 14.0 billion in the same period of the previous year.
The Central Bank purchased Indian currency (IC) IRs 11.9 billion for 270 million US dollar in the Indian money market in comparison to IRs. 12.9 billion for 320 million US dollar in the corresponding period of the previous year. Despite the widening trade deficit Nepal has with India, depreciation of IC against the US dollar has led to a smaller sale of the US dollar for IC purchase in contrast to the same period of the previous year.
The government budget deficit has substantially reduced to Rs.2.9 billion compared to Rs 9.4 billion in the corresponding period of the previous year. An increase in revenue and foreign cash grants along with the reduction in government expenditure has led to the reduction in budget deficit in the review period (from mid-July to mid-October 2008).
The government received foreign cash loans of Rs 936.7 million and foreign cash grants of Rs 2.5 billion in comparison to the foreign cash loans of Rs 845.7 million and foreign cash grants of Rs 1.2 billion in the corresponding period of the previous year.
Exports went up by 27.1 percent compared to the rise of just 4.3 percent in the corresponding period of the previous year. Of the total exports, export to India increased by 10.1 percent compared to the increase of 0.6 percent in the same period of the previous year. Exports to other countries surged by 58.3 percent compared to the increase of 11.9 percent in the same period of the previous year.
The rise in the exports to India was attributed to the upsurge in the exports of readymade garments, shoes and sandals, polyester yarn, copper wire rod and G.I. pipe. Similarly, the rise of the exports to other countries was ascribed to the upsurge in the exports of pulses, woolen carpets, woolen shawl (pashmina), herbs and leather.
Total imports increased by 30.6 percent compared to a lower increase of 13.1 percent in the corresponding period of the previous year. Imports from India increased by 19.3 percent compared to 13.7 percent; imports from other countries expanded by 48.5 percent compared to 12.1 percent in the corresponding period of the previous year.
Increase in the import of petroleum products, vehicles & spare parts, cold rolled sheet in coil, hot rolled sheet in coil and cement, among others, from India and gold, MS billet, telecommunication equipment & parts, computer & parts and polythene granules, among others from other countries led to the surge in the total imports.
The overall Balance of Payments (BOP) recorded the surplus of Rs. 7.7 billion in contrast to the deficit of Rs. 5.6 billion; the current account also posted the surplus of Rs. 8.8 billion against the deficit of Rs. 6.6 billion in the corresponding period of the previous year. Such current account surplus was primarily attributed to the increase in net transfers by 75.5 percent. Workers' remittances soared by 80.7 percent compared to the increase by only 17.2 percent in the corresponding period of the previous year.
The gross foreign exchange reserves stood at Rs. 230.8 billion in mid-October 2008, an upsurge of 8.5 percent compared to the level in mid-July 2008. In terms of US dollar, gross foreign exchange reserves declined by 3.9 percent to US$ 3.0 billion in mid-October 2008. The current level of reserves is adequate for financing merchandise imports for 10.1 months and merchandise and service imports for 8.0 months.
The Nepalese currency depreciated against the US dollar by 11.50 percent in mid-October 2008 in comparison to mid-July 2008. It had appreciated by 2.6 percent in the corresponding period of the previous year. The exchange rate of one US dollar stood at Rs.77.40 in mid-October 2008 compared to Rs. 68.50 in mid-July 2008.
