NRB Macro-economic review: Inflation touches record high

BoP posts a surplus, foreign exchange reserve up:

Kathmandu, November 23:

According to a monthly macro-economic review released by Nepal Rastra Bank (NRB), today, year-on-year consumer inflation rose significantly by 8.2 per cent during the first two months of current fiscal year that ended in mid-September.

It shows that the national economy is heading towards a crisis with consumers being compelled to pay more prices for goods and services, transport and communications, states the monthly review.

The consumer inflation had increased at a lower level of 2.6 per cent during the same period last year. The higher growth in the consumer inflation was mainly due to rise in prices of housing goods and services, transport and communication, and restaurant meals. The upward revision in the prices of petroleum products together with the sharp rise in the price of rice and rice related products caused to this significant increase in inflation.

In the review period, the rise in the prices of beverages, pulses as well as meat, fish and eggs also exerted an upward pressure on consumer prices. The 12-month average growth rate of consumer price was 7.8 per cent. The growth of consumer price inflation was 2.5 per cent in the previous year.

According to the report, people living in the hilly region ‘suffered most’, as the price index in these areas increased by 9.1 per cent. However, consumers in the Kathmandu Valley and Terai witnessed inflation at a lower level, as it grew by 6.8 per cent and 8.8 per cent respectively.

In contrast the inflation had increased at a lower rate during the corresponding period last year. It had recorded 4.4 per cent in the Kathmandu Valley, 2.1 per cent in Terai and only 1.3 per cent in the Hills. Fragile security situation, in the hilly regions, resulted in impediment to the supply, which have had a greater impact in significant rise in inflation.

During the period, government budgetary operation, on the cash flow basis, recorded a surplus of Rs 4 billion. Such a budget surplus was Rs 2 billion in the same period last year. A higher growth of resource mobilisation relative to the government expenditure contributed to such a higher budget surplus in the review period.

The total government expenditure increased by 17.1 per cent to Rs 8.0 billion in contrast to a decline of 25.8 per cent during the same period last year. Of the total, recurrent expenditure stood at Rs 5.3 billion (65.9 per cent), capital expenditure at Rs 51.1 million (0.6 per cent) and principal repayment at Rs 403.3 million (5.0 per cent). Expenditure under freeze account, whi-ch recorded a rise of 64.0 per cent to Rs 2.3 billion accounted for 28.5 per cent.

Revenue, which is the major source of resources, increased by 13.4 per cent to Rs 8.8 billion. Nepal received grants worth Rs 1.1 billion during the period, whereas it has received Rs 677.1 million last year.

Based on customs data, the total exports increased by 10.8 per cent to Rs 9.8 billion and total imports increased by 25.2 per cent to Rs 24.8 billion. As a result, trade deficit increased by 36.7 per cent to Rs 15.1 billion during the first two months of the current fiscal year. Exports to India rose by 20.6 per cent to Rs 6.4 billion this year in comparison to a rise of 26.4 per cent last year. However, exports to other countries fell by 3.8 per cent to Rs 3.4 billion.

Total imports from India rose by 27.3 per cent to Rs 15.5 billion compared to a rise of 5.1 per cent last year. The total imports from other countries has increased by 21.9 per cent to Rs 9.4 billion, in contrast to a decline of 19.5 per cent last year.

On the basis of monetary survey, the overall balance of payments (BoP) recorded a surplus of Rs 2.1 billion, in contrast to a deficit of Rs 821 million last year. The higher inflows of remittance accounted for a surplus in BoP this year.

The gross foreign exchange reserves went up by 3.4 per cent to Rs 133.5 billion in mid-September 2005. The current reserve level is sufficient to cover merchandise imports of 10.8 months.