KATHMANDU, JANUARY 13

Nepal's burgeoning trade deficit coupled with slowdown in remittance inflow is exerting pressure on the country's current account, balance of payments (BoP) and foreign exchange reserves, the latest macroeconomic update of the Nepal Rastra Bank unveiled today shows.

During the five months of fiscal year 2021-22 (mid-July to mid-December), the country's merchandise exports soared 105.6 per cent to Rs 102.92 billion. However, the amount pales when compared to a surge of 59.5 per cent in imports to Rs 838.41 billion.

While the export-import ratio rose to 12.3 per cent in the review period from 9.5 per cent in the corresponding period of the previous year, the total trade deficit increased by 54.7 per cent to Rs 735.49 billion.

Consequently, the country's current account remained at a deficit of Rs 300.69 billion in the review period compared to a deficit of Rs 23 billion in the same period of the previous year. The BoP deficit stood at Rs 195.01 billion in the review period against a surplus of Rs 106.48 billion in the same period of the previous year.

Moreover, as per the broad economic categories (BEC), the intermediate and final consumption goods accounted for 47.07 per cent and 52.91 per cent of the total exports, respectively, whereas the ratio of capital goods in total exports remained negligible at 0.02 per cent in the review period.

In the same period of the previous year, the ratio of intermediate, capital and final consumption goods stood at 31.87 per cent, 0.76 per cent and 67.36 per cent of total exports, respectively.

On the imports side, the share of intermediate goods was 53.8 per cent, capital goods 10.9 per cent and final consumption goods 35.3 per cent in the review period. Such ratios were 51.6 per cent, 12.4 per cent and 36 per cent, respectively, in the same period of the previous year.

The gross foreign exchange reserves decreased 14.7 per cent to $10.03 billion in mid-December 2021 from $11.75 billion at the start of the fiscal (in mid-July 2021).

Based on the imports of the five months of 2021-22, the foreign exchange reserves of the banking sector is sufficient to cover the prospective merchandise imports of 7.5 months, and merchandise and services imports of 6.8 months.

Meanwhile, remittance inflows decreased 6.8 per cent to Rs 388.58 billion in the review period against an increase of 11 per cent in the same period of the previous year.

In the review period, capital transfer decreased 2.4 per cent to Rs 4.64 billion while net foreign direct investment (FDI) increased 57 per cent to Rs 7.07 billion. In the same period of the previous year, capital transfer and net FDI amounted to Rs 4.75 billion and Rs 4.50 billion, respectively.

Broad money (M2) rose 1.3 per cent in the review period compared to the growth of 7.4 per cent in the corresponding period of the previous year. On year-on-year basis, M2 expanded 14.9 per cent in mid-December 2021.

Reserve money decreased 11.5 per cent in the review period compared to a decrease of 5.5 per cent in the corresponding period of the previous year.

On year-on-year basis, reserve money decreased 1.5 per cent in mid-December 2021.

CPI soars past target

The year-on-year consumer price inflation (CPI) jumped to 7.11 per cent in the fifth month of fiscal year 2021-22 (mid-December, 2021) compared to 2.93 per cent a year ago, the latest macroeconomic data of the central bank unveiled on Thursday showed.

The annual price growth has surged past the 6.5 per cent target set by the Nepal Rastra Bank through the Monetary Policy for 2021- 22.

The food and beverage inflation stood at 5.67 per cent whereas non-food and service inflation stood at 8.25 per cent in the review month, the NRB report shows. In the review month, the inflation in Kathmandu valley was 5.91 per cent, 7.52 per cent in Tarai, 6.95 per cent in hills and 4.91 per cent in mountains. Inflation in these regions was 3.71 per cent, 2.35 per cent, 3.95 per cent and 4.22 per cent respectively a year ago. Such inflation in India was 5.59 per cent in December 2021.

A version of this article appears in the print on January 14, 2022, of The Himalayan Times.