Kathmandu, November 27:

Gross foreign exchange reserves in the first two months of the current fiscal year 2006-07 has increased by 0.5 per cent and reached Rs 166 billion, informed governor of Nepal Rastra Bank (NRB), Bijay Nath Bhattarai while talking to journalists today.

Bhattarai said that the share of convertible reserves in the total reserves rose slightly to 95.5 per cent in mid-September 2006 from 94.7 per cent in mid-September 2005, resulting in a corresponding fall in the share of the non-convertible reserves to 4.5 per cent from 5.3 per cent.

Giving a detailed account of the national economy, Bhattarai said that the economic situation did not improve as expected in the beginning of the current fiscal year. He said that the decline in the production of paddy by 1.9 per cent in fiscal 2005-06 will continue to result in a downfall in this fiscal as well as per preliminary estimations.

Industrial production would remain normal and see an improvement in the service sector in days to come, says Bhattarai.

He said that the GDP growth in fiscal year 2006-07 would not rise as per expectations, estimated at five per cent. During the first two months, inflation stood at seven per cent, he said.

In response to questions over whether the central bank would approve further loans to blacklisted borrowers and defaulters, he said, “NRB would not involve itself in releasing or approving loans to these type of borrowers. It works in a transparent way.”

The governor said that compared to the use of Rs 950 million loan under standing liquidity facility (SLF) in the previous year, commercial banks borrowed Rs 370 million from Nepal Rastra Bank (NRB) under this facility in the review period.

The excess liquidity situation with the commercial bank lowered the use of SLF in the review period.

According to NRB, region-wise, price level remained high in the hills at 7.2 per cent and Terai at 6.7 per cent and relatively low in the Kathmandu valley at six per cent.

The respective inflation rates were 9.1, 8.8 per cent and 6.8 per cent a year ago. On the fiscal front, total government spending recorded a growth of 22.5 per cent to Rs 9.8 billion in the first two months of 2006-07. The government spending had gone up by 17.1 per cent in the same period of 2005-06.

A significant rise in recurrent expenditure largely accounted for a surge in overall government expenditure.

The government revenue had increased by 22.3 per cent to Rs 10.8 billion in the first two months of 2006-07. Revenue had increased by 13.4 per cent in the corresponding period last year, says NRB.

Total foreign cash grants and foreign loans declined by 39.8 per cent and 15.2 per cent respectively in contrast to an increase of 65.8 per cent.