Current account deficit soars to Rs 17.88 billion

Published On: October 30, 2017 05:30 AM NPT By: Republica  | @RepublicaNepal

KATHMANDU, Oct 30:  Rise in import bill and slow export growth coupled with stagnation in remittances have resulted in current account deficit of Rs 17.88 billion in the first two months of the current fiscal year 2017/18. 

This is the second straight month that the country logged current account deficit. In the first month of the current fiscal year, the country saw deficit of Rs 5.43 billion. The deficit was Rs 11.12 billion in the first two months of 2016/17, according to the Nepal Rastra Bank (NRB).

The 'Current Macroeconomic and Financial Situation of Nepal' of first two months of 2017/18 made public by the NRB on Sunday shows that country's merchandise imports increased by 11 percent to Rs 165.41 billion in the review period compared to a growth of 43.4 percent in the same period of the previous fiscal year. However, Nepal's exports grew by a nominal 3 percent to Rs 13.58 billion in the first two months of the current fiscal year. Such was 7.7 percent in the first two months of 2016/17. 

According to the report, workers' remittances grew by a paltry 0.7 percent to Rs. 115.55 billion in the review period, compared to a growth of 6.6 percent in the same period of 2016/17.

Likewise, the country recorded a balance of payment (BoP) deficit of Rs 5.87 billion in the first two months of 2017/18, compared to a deficit of Rs 3.50 billion in the same period of the last fiscal year.  

BoP refers to the sum of all transactions between a nation and all of its international trading partners. 

The deficit in the current account, which is the sum of balance of trade (goods and services export fewer imports), net income from abroad and net current transfers, indicates vulnerability of the country's economy because of rising import bill amid slow export and remittance growth rates, according to the central bank.

“Slow exports and meager remittance growth, as well as whopping rise in imports, contributed to current account deficit,” Rajendra Pandit, the deputy spokesperson of the NRB, told Republica. “But the vulnerability depends on whether we are importing goods and services for consumption only or machinery and equipment that can help other economic activities.” 

Meanwhile, consumer price inflation increased to 3.4 percent in mid-September 2017 compared to 2.3 percent in mid-August 2017. The central bank has attributed the rise in inflation to damage of vegetables due to floods in mid-August. 

Central bank optimistic of better economic performance

KATHMANDU, Oct 30: Though the current account and BoP deficit presents bleak picture of the economy, the Nepal Rastra Bank is optimistic that the situation will improve in the coming months.

Rise in industrial capacity utilization due to increased power supply to industrial estates, better performance of tourism sector, and rise in economic activities due to election indicate better economic performance in the coming months, according to the central bank. 

“Industrial capacity utilization is expected to expand further on account of improved power supply and smooth supply of industrial raw materials. Some hydropower projects are in completion phase and expected to come into operation in the current fiscal year,” the report adds. 

Likewise, the NRB expects the capital expenditure to improve after the provincial and parliamentary polls. 

Low capital expenditure is one of the major problems in Nepal's economic fronts, blamed mainly to political instability and absence of representatives in local levels. 

Endorsements of key laws related to the economy like Intergovernmental Fiscal Management Bill, 2017, National Natural Resources and Fiscal Commission Bill, 2017 and Employee Adjustment Bill, 2017 are expected to facilitate capital spending at local levels, spurring economic activities across the country.

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