Every month, the Nepal Rastra Bank (NRB), the nation's central bank, publishes a comprehensive overview of the country's Macroeconomic and Financial Situation. This report covers a variety of macroeconomic indicators, including inflation, remittance inflow, foreign exchange reserves, interest rate patterns, and numerous other factors.

As investors and responsible citizens, it's crucial to stay informed about the nation's economic health. Therefore, this report is an important resource that demands our attention. Recently, Nepal Rastra Bank has released a monthly report, covering data from the first six months ending mid-January of FY 2023/24. This report indicates a notable improvement in the country's economic landscape.

Let's examine the diverse key factors necessary for comprehensively assessing the overall health of our economy:

Consumer Price Inflation (CPI)

The inflation rate has risen to 5.26%, marking an increase from the previous month's 4.95% and a decrease from the 7.26% rate reported a year ago. Despite this fluctuation, inflation has remained within the government's targeted range of 6.5%, as specified in the fiscal year budget. In the current assessment period, inflation in the food and beverage category was recorded at 5.77%, while non-food and service category inflation stood at 4.85% for the review month.

Import and Export

Merchandise exports experienced a 7.2% decline, totaling Rs.74.97 billion, contrasting with a 32% reduction in the previous year's corresponding period. Export destinations depicted a mixed picture, with a 12.8% decrease in exports to India, while exports to China and other countries surged by 370.9% and 1.3%, respectively.

Simultaneously, merchandise imports decreased by 3.1% to Rs.768.17 billion, in contrast to a 20.7% decline recorded a year earlier. Import sources displayed varied trends, with a 2.4% decline in imports from India and a substantial 25.7% reduction in imports from other countries. Conversely, imports from China witnessed a notable increase of 34%. The total trade deficit saw a 2.6% decrease to Rs.693.20 billion during the period, compared to a 19.2% decrease in the corresponding period of the previous year.

Remittances Inflows

Remittance inflows soared by 25.3% to reach Rs.733.22 billion, surpassing the 24.3% increase recorded in the previous year's corresponding period. Similarly, in US Dollar terms, remittance inflows experienced a significant 22.6% surge to $5.52 billion, compared to a 13.9% increase in the same period of the previous year.

Similarly, the number of Nepali workers taking first time approval for foreign employment stands at 207,970 and taking approval for renew entry stands at 135,435. In the previous year, such numbers were 275,643 and 142,548 respectively.

Current Account and Balance of Payments

The current account maintained a surplus of Rs.161.62 billion compared to a deficit of Rs.35.57 billion in the previous year's corresponding period. In terms of US Dollars, the current account recorded a surplus of 1.21 billion in the review period, contrasting with a deficit of 279.6 million in the same period a year ago.

The Balance of Payments (BOP) sustained a surplus of Rs.273.52 billion, an increase from the Rs.92.15 billion surplus recorded in the corresponding period of the previous year. When measured in US Dollars, the BOP maintained a surplus of 2.06 billion in the review period, up from 697.4 million in the same period the previous year.

Foreign Exchange Reserves and Adequacy Indicators

Gross foreign exchange reserves surged by 18.0% to reach Rs.1816.57 billion compared to Rs.1539.36 billion in mid-July 2023. Measured in US dollars, the gross foreign exchange reserves increased by 16.9%, reaching 13.69 billion in mid-January 2024, up from 11.71 billion in mid-July 2023.

The banking sector's foreign exchange reserves are adequate to cover prospective merchandise imports for 14.5 months and merchandise and services imports for 12.1 months. As of mid-January 2024, the ratios of reserves-to-GDP, reserves-to-imports, and reserves-to-M2 were 33.8%, 100.9%, and 27.7% respectively. In comparison, these ratios were 28.6%, 83%, and 25% respectively in mid-July 2023.

Exchange Rate

The Nepalese currency saw a 0.91% depreciation against the US dollar compared to mid-July 2023. This depreciation was less steep than the 1.79% depreciation recorded during the same period in the previous year. The buying exchange rate per US dollar stood at Rs.132.38 in mid-January 2024, up from Rs.131.17 in mid-July 2023.

Interest Rates

The average base rates for commercial banks, development banks, and finance companies were 9.35%, 11.49%, and 12.77%, respectively. Compared to a year ago, the average base rate for commercial banks was 10.91%.

Weighted average deposit rates for commercial banks, development banks, and finance companies stood at 7.32%, 8.55%, and 9.62%, respectively, compared to 8.51% for commercial banks a year ago.

Weighted average lending rates for commercial banks, development banks, and finance companies were 11.38%, 13.14%, and 14.09%, respectively, compared to 12.79% for commercial banks a year ago.

Nepal Government Expenditure and Revenue

Nepal Government's expenditure for the first half of 2023/24 was Rs. 566.62 billion, down 1.7% from the previous fiscal year. Recurrent expenditure was Rs. 437.38 billion, capital expenditure was Rs. 49.24 billion, and financial expenditure was Rs. 80 billion. Total revenue, including transfers to provincial and local governments, reached Rs. 496.50 billion, marking an 8.2% increase. Tax revenue was Rs. 443.55 billion, and non-tax revenue was Rs. 52.95 billion.

Deposit and Credit Disbursements

Deposits at Banks and Financial Institutions (BFIs) increased by Rs. 377.07 billion in the review period compared to an increase of Rs. 215.14 billion in the corresponding period of the previous year. On a year-on-year basis, deposits at BFIs expanded by 14.9 percent in mid-January 2024.

Private sector credit from BFIs increased by Rs.192.64 billion in the review period, contrasting with a rise of Rs.137.33 billion in the corresponding period of the previous year. Year-on-year, credit to the private sector from BFIs increased by 4.9 percent as of mid-January 2024.

BFIs experienced a 13.2% increase in term loans, a 27.5% rise in cash credit loans, and a 5.8% growth in trust receipt (import) loans. Real estate loans, including residential personal home loans, saw a 4.7% increase, while margin nature loans increased by 10.5%. Conversely, overdraft loans decreased by 41.0% (largely due to loan reclassification from the previous year), and hire purchase loans decreased by 19.9%.

Summary

The Nepal Rastra Bank's report for the first half of FY 2023/24 shows stable inflation at 5.26%, declining merchandise exports, and surpluses in the current account and balance of payments. Remittance inflows surged, supporting the economy, while foreign exchange reserves increased despite a slight depreciation against the US dollar. Government expenditure decreased slightly, yet total revenue rose, indicating improved fiscal management. Deposits and credit disbursements in BFIs experienced notable growth, bolstering liquidity and economic activity. Overall, the report suggests a positive economic outlook for Nepal, highlighting the need for ongoing attention to sustain growth and stability.

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