Trade deficit up, inflation to be higher, says NRB

Kathmandu, January 22:

At a time when the economists are predicting the inflation to touch double digits, officials at the Nepal Rastra Bank (NRB), at a programme held in the central bank today, also expressed

fears that the inflation may rise further from the existing 8.5 per cent which was only 7.8 per cent last month. The current rise in inflation is attributed to rising global oil prices and hike in Value Added Tax (VAT) rates from 10 to 13 per cent. At the same time, they also predicted that annual average revised inflation would hover around seven per cent in 2005-06.

Krishna Bahadur Manandhar, acting governor of the apex bank, while releasing the report of fourth months economic outlook commented, “During the first four months of 2005-06, the overall Balance of Payments (BoP) surplus stood at Rs 4.1 billion in comparison to a surplus of Rs 1.2 billion in the same period of 2004-05, which is contributed by a significant rise in workers’ remittance”.

However, trade deficit increased significantly by 51 per cent in the first four months of the current fiscal year as against a decline of 8.3 per cent in the same period in 2004-05, said Manandhar, “A significant surge in total imports by 36.5 per cent relative to a rise of 17.2 per cent in total exports widened the merchandise trade deficit in the first four months of 2005-06.”

Keshav Acharya, chief of Research Department at the NRB, said that the manufacturing production index increased by a lower rate of 2.4 per cent in the first quarter of 2005-06 in comparison to a growth of four per cent in the same period of 2004-05. The decline in the production of garment, sawn-wood, newspaper, books and paper and paper products lowered the manufacturing production index this year in comparison to that of the preceding year.

NRB officials did not clearly mention the expected GDP growth rate but said that the GDP is likely to remain modest in 2005-06.

Food grains production is estimated to register a negative growth in 2005-06 as well. Paddy production is estimated to decline by 1.9 per cent in comparison to a decrease of 3.7 per cent in 2004-05, states the NRB report.

Higher level of Net Foreign Assets (NFA) accumulation emanating from a significant increase in workers’ remittances caused money supply to go up, according to the central bank.

The size of fiscal deficit as the ratio of total expenditure has expanded by five per cent in mid-November 2005, in comparison to a negligible 0.2 per cent in the same period of 2004-05.

Excluding the local authority account, such fiscal deficit has increased significantly by 13.6 per cent. The revenue growth remained modest at 6.9 per cent in mid-November 2005 in comparison to a rise of 4.7 per cent a year ago.