KATHMANDU, JULY 11
Slight improvement in remittance inflow coupled with import restrictions on certain non-essential goods seem to have propped up the country's foreign exchange reserves, which rose by $170 million in the one-month period between mid-May and mid-June, as per the latest macroeconomic update unveiled by the Nepal Rastra Bank (NRB) today.
As per the central bank, the gross foreign exchange of the country stood at $9.45 billion in mid-June, compared to $9.28 billion in mid-May. However, over the 11 months of this fiscal, the foreign exchange reserves has slumped 19.6 per cent from $11.75 billion in mid-July of 2021.
During the first 11 months of the current fiscal year, merchandise exports surged by 53.3 per cent to Rs 185.84 billion compared to an increase of 37.8 per cent in the same period of the previous year. The export growth, however, failed to narrow the trade deficit owing to the increase in imports during the same time.
Imports growth was recorded at 27.5 per cent to Rs 1,763.22 billion against an increase of 25.7 per cent during the 11 months of the fiscal a year ago.
While the export-import ratio rose to 10.5 per cent in review period from 8.8 per cent in corresponding period of previous year, the total trade gap widened by 24.6 per cent to Rs 1,577.38 billion.
As per the Broad Economic Categories (BEC), the intermediate and final consumption goods accounted for 47.4 percent and 52.6 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 same period of previous year, the ratio of intermediate, capital and final consumption goods stood at 29.7 per cent, 0.4 per cent and 69.9 per cent of total exports, respectively.
On the imports side, the share of intermediate goods remained 52.4 per cent, capital goods 10.2 per cent and final consumption goods remained 37.4 per cent in the review period.
Such ratios were 53.5 per cent, 11.8 percent and 34.7 per cent respectively in the same period of the previous year.
Consequently, the current account remained at a deficit of Rs 595.73 billion in the review period compared to a deficit of Rs 298.11 billion in the same period of the previous year.
Likewise, balance of payments (BoP) remained at a deficit of Rs 269.81billion in the review period against a deficit of Rs 15.15 billion in the same period of the previous year.
Based on the imports of 11 months of current fiscal, the foreign exchange reserves of the banking sector is sufficient to cover the prospective merchandise imports of 7.53 months, and merchandise and services imports of just 6.73 months.
Meanwhile, remittance inflows, which had slowed down since the beginning of the current fiscal year, saw a slight uptick, increasing by 3.8 per cent to Rs 904.18 billion in the review period, compared to a jump of 12.6 per cent in the same period of the previous year.
According to Dilli Raj Acharya, an economist, apart from the uptick in remittance, the latest macroeconomic report shows economic indicators in the negative.
"Nepal's ballooning trade deficit due to high prices and strong dollar is exerting pressure on the country's current account, BoP and foreign exchange reserves," Acharya said.
"Hence, the monetary policy for the next fiscal year should focus on introducing measures for economic stability."
A version of this article appears in the print on July 12, 2022, of The Himalayan Times.
