KATHMANDU, NOVEMBER 17

Nepal's economy displayed a strong external performance coupled with subdued domestic inflation in the first quarter of the current fiscal year 2025/26, according to the latest macroeconomic report released by Nepal Rastra Bank (NRB) on Sunday.

Remittances surge over 35 percent

Remittance inflows rose sharply by 35.4 percent to Rs 553.31 billion in the first three months of the fiscal year, compared to an 11.9 percent rise a year earlier. A single month, Ashoj (mid-September to mid-October), accounted for Rs 201.22 billion, up from Rs 144.17 billion in the same month last year. In US dollar terms, remittances grew by 29.2 percent to $3.94 billion.

Exports rebound but deficit widens

Nepal's export sector posted a robust comeback, with merchandise exports jumping 89.6 percent to Rs 72.78 billion. The surge was largely fueled by exports to India, which rose 137.9 percent, and strong performances of soybean oil, palm oil, jute goods and cardamom.

However, the import bill also grew by 19.8 percent to Rs 468.08 billion, led by purchases of crude soybean oil, chemical fertilizer, gold, and vehicles. Consequently, the merchandise trade deficit widened by 12.2 percent to Rs 395.30 billion.

Despite the wider trade gap, the nation's external health strengthened significantly, powered by the remittance boom. The current account recorded a surplus of Rs 237.59 billion, nearly double that of the previous year. Foreign exchange reserves saw a robust build-up, rising to $21.21 billion by mid-October from $19.50 billion in mid-July.

Inflation cools to 1.47 percent

On the domestic front, consumers received welcome relief as inflation eased to a modest 1.47 percent in mid-October, a sharp decline from 4.82 percent a year ago. This disinflation was primarily driven by a 2.54 percent fall in food and beverage prices, with significant drops noted for vegetables, spices, and pulses.

In contrast, non-food and services inflation remained elevated at 3.80 percent, with notable increases in the costs of education, clothing, and household goods. This trend, however, was not uniform across the country. Regionally, Koshi Province recorded the highest inflation at 2.33 percent, while Sudurpashchim saw the lowest at 0.69 percent.

The easing of price pressures was also evident at the wholesale level, where inflation fell to 1.32 percent, down sharply from 5.51 percent a year earlier. Meanwhile, in a positive development for household incomes, the Salary and Wage Index rose 4.48 percent, with the strongest wage gains recorded in Gandaki Province.

Government spending rises as revenue lags

In the first quarter, government expenditure reached Rs 364.59 billion, but the bulk of it, Rs 256.81 billion, was recurrent spending. Capital expenditure remained low at Rs 19.18 billion, underscoring ongoing challenges in project execution, while financial expenditure stood at Rs 88.60 billion.

According to the NRB report, total revenue amounted to Rs 249.05 billion, comprising Rs. 234.33 billion in tax and Rs 14.72 billion in non-tax receipts, widening the fiscal imbalance.

Meanwhile, the government's cash balance at NRB rose to Rs 174.92 billion by mid-October, reflecting front-loaded revenues and slow capital spending.

Provincial governments mobilised Rs. 45.08 billion in the first quarter, mostly federal transfers, but spent only Rs 17.15 billion, continuing the long-standing pattern of low budget utilisation at the subnational level.

In terms of monetary aggregates, Broad money (M2) grew 3.2 percent, slightly below last year's 3.4 percent expansion. On a year-on-year basis, M2 rose 12.2 percent. Net foreign assets, buoyed by strong external inflows, increased Rs 264.03 billion, while reserve money grew 2.6 percent during the quarter.