Kathmandu, June 26:

Over the last few months, Nepal has been experiencing rise in inflation. Food and beverage prices have pushed inflation up as it posted 9.2 per cent in mid-May from 4.6 per cent last year whereas the year-on-year salary and wage rate index rose by only seven per cent in mid-May, compared to a rise of 11.9 per cent a year ago.

“Inflation is mainly driven by the 13 per cent rise in prices of food and beverages,” according to the current macro-economic situation report of Nepal Rastra Bank (NRB), based on the first 10 months’ data of the current fiscal year.

Prices of rice and rice products of this sub-group increased by 25.2 per cent compared to an increase of 3.8 per cent a year ago. “Of the items showing price rise, price indices of the edible oils and ghee sub-group increased by a whopping 27.6 per cent on a y-o-y basis in May compared to an increase of 9.9 per cent last year,” states the report.

Region-wise, the price rise in Tarai region is 10 per cent followed by 8.6 per cent in the hills and 8.5 per cent in Kathmandu Valley. Last year, it was five per cent, four per cent and 4.4 per cent, respectively.

Despite pressure on salary index on account of hike in salary of civil servants including security personnel, teachers and employees by 17 per cent in July 2007, pressure on wage rate index with a higher weight remained modest resulting in a rise of national salary and wage index in the review period at the same rate as in the previous year.

The wage rate index increased by 5.9 per cent in the review period compared to an increase of 13.8 per cent in the same period last year. Wages of agricultural, industrial and construction labourers increased by 6.3 per cent, 4.6 per cent and 7.1 per cent, respectively, in mid-May 2008. Last year, they increased by 10.9 per cent, 19.2 per cent and 11.5 per cent, respectively.

Similarly, government budget deficit has also amounted to Rs 6.4 billion in the first 10 months of the current fiscal year. The budget was at a surplus of Rs 2.86 billion in the corresponding period last year. “The relatively higher growth of government expenditure resulted in the budget deficit in the review period,” states the central bank report.

Domestic financing of the budget deficit through the issue of securities (excluding overdrafts) amounted to Rs 13.33 billion. The government’s cash balance with NRB amounted to Rs 9.87 billion in mid-May. Including the cash balance of Rs 3.12 billion for the previous year, the cumulative cash balance reached Rs 12.99 billion in mid-May.

However, net domestic borrowing remained at a negative of Rs 1.94 billion on account of repayment of Rs 5.40 billion domestic debt and cash balances to the central bank in the review period. The outstanding domestic debt — including cash balance with NRB — of the government stood at Rs 94.24 billion in mid-May. Such outstanding debt was at Rs 96.18 billion in mid-July 2007.

Of the total revenue mobilisation, VAT revenue grew by 21.8 per cent to Rs 25.3 billion. Growth in VAT revenue was due to growing imports and consumption induced by the rise in remittances and reforms in VAT administration like setting up Large Taxpayers Unit, strengthening of billing system and non-filers management.