BOP, current account slip into deficit

Published On: April 13, 2018 02:30 AM NPT By: Republica  | @RepublicaNepal

KATHMANDU, April 13: The external sector of the country seems to be worsening as both current account and balance of payment (BoP) positions of the country have slipped into deficits in the eight months of the current fiscal year 2017/18. 

According to 'Current Macroeconomic and Financial Situation of Nepal (Based on Eight Months' Data of 2017/18), deficits, both in current account and balance of payments, have widened further during the review period on account of elevated level of imports. The report shows that the current account deficit rose to Rs 153.96 billion in the review period from a deficit of Rs 6.31 billion in the same period of FY2016/17. 

“The significant increase in imports and dividends payment for foreign investment widened the current account deficit,” read the periodic report of the central bank. 

Similarly, the overall BOP remained at a deficit of Rs 24.73 billion in contrast to a surplus of Rs 50.02 billion in the same period of the previous year, according to the report. 

BoP summarizes transactions between a country and the rest of the world. It classifies transactions under two headings -- capital account and current account. Current account refers to the difference between the import and export of goods and services.

However, the level of foreign exchange reserves is sufficient to cover the import of goods and services of 9.7 months, according to the NRB report. 

Nepal's trade deficit widened further in the review period. The NRB data shows that the total trade deficit widened by 23 percent to Rs 713.93 billion in the eight months of FY2017/18.

Meanwhile, inflation seems to be on an upward trajectory after seeing lower than expected rise in recent months. According to the data, the year on year consumer inflation rose to 6 percent in mid-March 2018, up from 2.9 percent a year ago. 

“An uptick in inflation is partly due to the spike in prices of vegetables and the lower price base of last year,” read the report. “Given the transitory spike in prices of vegetables, the annual average inflation is expected to remain below the annual forecast.”

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