The good news first. Nepal's external economic situation looks inspiring. According to the Current Macroeconomic and Financial Situation analysis – covering the first quarter of the current fiscal year mid-July through mid-October – released by the Nepal Rastra Bank on Tuesday, the imports decreased by 4.2 percent to Rs 390.75 billion. As per the report, the remittances increased by 11.5 percent to Rs 407.31 billion. The Balance of Payments remained at a surplus of Rs 184.99 billion against a surplus of Rs 101.66 billion in the corresponding period last year. The foreign exchange reserves rose by 9.4 percent to Rs 2.232 trillion ($16.60 billion). The foreign exchange reserves will be sufficient to foot the merchandise imports bills for 17.6 months. Normally, countries tend to maintain a foreign exchange reserve adequate for merchandise imports of 8-10 months. We have a lot more than needed. Economists are cautiously happy about the foreign currency reserve which serves as a cushion for a largely import-based economy that Nepal has traditionally been. Except for the exports that declined by 6.1 percent to Rs 38.38 billion, it is a near perfect fiscal situation at the first look.
Let us now turn our focus to the internal fiscal situation. On the flip side, we see an equally disappointing picture. The Consumer Price Index-based inflation remained 4.82 percent on a year-on-year basis. The NRB report, however, appeared to downplay the country's inflation a bit too smartly, comparing it with India's consumer price index that stood at 6.21 percent in October 2024. The average price of food and beverage went up by 7.18 percent; the price index of vegetable sub-category by 25.15 percent; pulses and legumes by 10 percent; cereal grains and products by 9.57 percent; and ghee and oil by 4.98 percent. The trading community mainly engaged in the import-export business attribute the across the board rise of consumer price index to the devastating floods and landslides in the last week of September. According to them, the natural disasters damaged food grains stored in the warehouses, adversely affecting the supply chain. Even worse, the natural disasters affected the price level in the rural areas, where the cash flow is lesser than the urban areas. The total government expenditure stood at Rs 329.20 billion. Of which, the recurrent expenditure amounted to 229.85 billion while the capital expenditure was worth a mere Rs 29.37 billion and the financial management expenditure worth Rs 69.97 billion. The expenditure pattern paints a really bad situation, yet again. Deposits at BFIs increased by 2.6 percent to Rs 170 billion while the private sector credit increased only by 2.5 percent to Rs 128.65 billion. On a year-on-year basis, deposits increased 12.8 percent while private sector credit increased by only 6 percent. This indicates the private sector is not ready or willing to borrow money from the bank. This has resulted in excessive liquidity in the market. As a result, in the review period, NRB absorbed a whopping liquidity of Rs 7.833 trillion, including Rs 590.55 billion through deposit collection tools and Rs 7.242 trillion through Standing Deposit Facility (SDF).
No limitation to beauty
The government faces numerous challenges ahead no matter how rosy the external sector looks to be. How well and efficiently the government will utilize the foreign currency reserves to facilitate the imports of capital goods, including machinery, remains yet to be seen. Consumption by and large uses up the remittances mainly coming from the millions of migrant workers working in the Gulf countries and Malaysia. Inflation is steadily on the rise and the public debt is going up all the time. All this has led to a dire economic situation. The country has seen an economic slowdown for the past couple of years.
