September 16: Government authorities have been claiming that the economy is heading in the right track but the data suggest otherwise. A report published by the Nepal Rastra Bank (NRB) on Thursday suggests that the pressure on external sector is still prevalent.

The Current Macroeconomic and Financial Situation Report of the first month of the current fiscal year published by the central bank on Thursday clearly shows that the indicators such as the Balance of Payments (BoP), inflation, foreign exchange reserves, remittance inflow are not positive. NRB officials say that the pressure on economy since the beginning of the last fiscal year is still on.

NRB Spokesperson Dr Gunakar Bhatta says that the pressure on external sector of the economy is still there and therefore all stakeholders need to remain alert.

“Inflation and Balance of Payments shows that the economy is still under pressure,” said Bhatta,, adding, “We are yet to feel a sigh of relief. We still need to remain alert.”

High Inflation

According to the central bank, inflation in the first month (mid-July to mid-August) of the current fiscal year stood above the limit projected by the NRB. The report states that the year-on-year consumer price inflation stood at 8.26 percent in the first month of FY 2022/23 compared to 4.35 percent a year ago. Food and beverage inflation stood at 7.11 percent whereas non-food and service inflation stood at 9.18 percent in the review month.

Under the food and beverage category, the prices of ghee and oil, fruits, restaurant and hotel, alcoholic drinks and milk products and eggs sub-categories rose by 19.58 percent, 18.79 percent, 11.84 percent, 10.24 and 10.19 percent respectively on y-o-y basis.

Likewise, under the non-food and services category, the prices of transportation, health, furnishing and household equipment, education and housing and utilities sub-categories rose by 23.88 percent, 10.54 percent, 9.04 percent, 8.11 percent and 7.86 percent respectively on y-o-y basis.

Current Account and Balance of Payments

The current account remained at a deficit of Rs 16.26 billion in the review period compared to a deficit of Rs 47.29 billion in the same period of the previous year. In the US Dollar terms, the current account registered a deficit of 127.68 million in the review period compared to deficit of 397.36 million in the same period last year.

In the review period, capital transfer increased 17.7 percent to Rs 800.34 million and net foreign direct investment (FDI) remained a negative of Rs 1.40 billion. In the same period of the previous year, capital transfer and net FDI amounted to Rs 679.72 million and Rs 480.57 million respectively.

Balance of Payments (BOP) remained at a deficit of Rs 22.63 billion in the review period compared to a deficit of Rs 38.75 billion in the same period of the previous year. In the US Dollar terms, the BOP remained at a deficit of 177.68 million in the review period compared to a deficit of 325.53 million in the same period of the previous year.

Foreign Exchange Reserves

Gross foreign exchange reserves decreased 1.5 percent to Rs 1197.85 billion in mid-August 2022 from Rs 1215.80 billion in mid-July 2022. Of the total foreign exchange reserves, reserves held by NRB decreased 0.7 percent to Rs 1049.11 billion in mid-August 2022 from Rs 1056.39 billion in mid-July 2022.

Reserves held by banks and financial institutions (except NRB) decreased 6.7 percent to Rs 148.74 billion in mid-August 2022 from Rs 159.41 billion in mid-July 2022.

The share of Indian currency in total reserves stood at 22.9 percent in mid-August 2022.

Foreign Exchange Adequacy Indicators

Based on the imports of first month of FY 2022/23, the foreign exchange reserves of the banking sector is sufficient to cover the prospective merchandise imports of 9.4 months, and merchandise and services imports of 8.0 months. The ratio of reserves-to-GDP, reserves-to-imports and reserves-to-M2 stood at 24.7 percent, 66.8 percent and 22.2 percent respectively in mid-August 2022. Such ratios were 25.1 percent, 57.8 percent and 22.1 percent respectively in mid-July 2022.

Trade Deficit

The total trade deficit of the country decreased 10.4 percent to Rs 116.48 billion in the first month of 2022/23. Such a deficit had increased 70.6 percent in the corresponding period of the previous year. The export-import ratio decreased to 11.3 percent in the review period from 13.8 percent in the corresponding period of the previous year.

During the first month of FY 2022/23, merchandise exports decreased 28.7 percent to Rs 14.81 billion against an increase of 115.9 percent in the same period of the previous year. Destination-wise, exports to India and China decreased 36.5 percent and 24.4 percent respectively whereas exports to other countries increased 5.7 percent.

Exports of palm oil, zinc sheet, readymade garments, medicine (ayurvedic), particle board, among others, increased whereas exports of soybean oil, oil cakes, jute goods, juice, cardamom, among others, decreased in the review period.

During the first month of FY 2022/23, merchandise imports decreased 12.9 percent to Rs 131.29 billion against an increase of 75.7 percent a year ago. Destination-wise, imports from India, China and other countries decreased 12.1 percent, 10.5 percent, and 15.9 percent respectively.

Imports of petroleum products, sponge iron, medicine, chemical fertilizer, crude palm oil, among others, increased whereas imports of transport equipment and parts, MS billet, telecommunication equipment and parts, crude soybean oil, hot rolled sheet in coil, among others, decreased in the review period.

 Based on customs points, exports from Krishnanagar, Kailali, Mechi and Tribhuwan Airport Customs Offices increased whereas exports from all the other major customs points decreased in the review period. On the import side, imports from Tatopani, Jaleshwor, Dry Port, Kailali and Rasuwa Customs Offices increased whereas imports from all the other major customs points decreased in the review period.

Remittances

Inflow of remittance increased by 20.3 percent to Rs 92.21 billion in the review period against a decrease of 17.4 percent in the same period of the previous year. The number of Nepali workers (institutional and individual) taking approval for foreign employment increased 222.8 percent to 44,540 in the review period. The number of Nepali workers (renew entry) taking approval for foreign employment increased 75.4 percent to 20,390 in the review period. It had increased 286.1 percent in the same period of the previous year.

Net transfer increased 18.4 percent to Rs 101.69 billion in the review period. Such a transfer had decreased 15.7 percent in the same period of the previous year.