KATHMANDU, March 13: The domestic sectors of Nepal’s economy are still struggling to gain momentum despite the cushion that the country is enjoying from the external sector indicators.
The Current Macroeconomic and Financial Situation Report of Nepal for the first seven months of the FY 2024/25 released recently by Nepal Rastra Bank (NRB) shows that the country has achieved marginal improvement in its domestic sector indicators as of mid-February this year.
Price Inflation
The year-on-year consumer price inflation has been moderated to 4.16 percent, down from 5.01 percent in the corresponding month last year. Although the growth rate of food price has been pacified of late, the consumers still have been facing the heat of food inflation with the price hike of edibles by 4.95 percent. Compared to mid-October, when food price hike was recorded at 7.18 percent and price index of vegetables went up by 25.15 percent, the general public felt some respite from the moderation in price hike of the essentials.
Public Finance
Due to the economic slowdown and failure to implement effective measures to check revenue leakage, the government struggled to meet its revenue collection target. In the first seven months of the current FY, the revenue collection of the government stood at 45.43 percent of its annual target of Rs 1.419 trillion. Similarly, the capital expenditure amount was recorded at 19.53 percent out of the total allocated amount of Rs 352.35 billion for the entire fiscal year.
As per the NRB records, the treasury position of the government has improved during the review period. As of mid-February, the cash balance with the government remained at Rs 350.07 billion, including the amount held by the provincial governments and local governments. The figure stood at only 83.99 billion in the corresponding period of last year.
Banks’ private sector lending
As of mid-February, banks and financial institutions (BFIs) issued loans worth Rs 283.46 billion, a growth of 5.6 percent. In the same period last year, the private sector lending increased by 4.1 percent to Rs 197.21 billion. Although the NRB records show nominal improvement in the BFIs lending including the level of domestic consumptions, the achievement is far less compared to the NRB’s target of achieving 12.5 percent lending to the private sector in the current fiscal year.
Compared to 27.76 percent growth in loans against shares by the BFIs, the portion of credit flow to the manufacturing sector increased merely 9.5 percent, construction sector by nine percent and service sector by seven percent.
Foreign currency reserves
The country’s foreign exchange reserves have shown significant improvement, with the Balance of Payments (BoP) and the current account both in surplus. By mid-February, the foreign currency reserves reached Rs 2.369 trillion, an increase by 16.1 percent from Rs 2.041 trillion recorded as of mid-July 2024.
Nepal received Rs 900.58 billion in remittance during the review period. The growth rate has slowed to 7.3 percent in the review period compared to the same period of last year.
The BoP remained at a surplus of Rs 284.41 billion, which was nominally less compared to Rs 297.72 billion in the corresponding month last year.
Foreign trade
As of mid-February this year, merchandise imports increased 10.1 percent to Rs 988.59 billion against a decline of 2.3 percent a year ago. Likewise, exports increased 46.5 percent to Rs 127.20 billion against a decrease of 7.1 percent in the same period of the previous year. As a result, the country’s trade deficit increased 6.2 percent to Rs 861.38 billion.