Inflation soars to 5.97 percent, remittance, foreign exchange reserve depleting

Highlights

• CPI-based Inflation remained 5.97 percent on y-o-y basis.
• Imports increased 42.8 percent and exports increased 88.3 percent.
• Remittances decreased 4.9 percent in NPR terms and 5.8 percent in USD terms.
• Balance of Payments remained at a deficit of Rs.247.03 billion.
• Gross foreign exchange reserves stood at USD 9.75 billion.
• Federal Government spending amounted to Rs.591.02 billion and revenue collection Rs.613.41
  billion.
• Broad money (M2) increased 2.8 percent. On y-o-y basis, M2 increased 13.5 percent.
• Deposits at BFIs increased 3.6 percent and private sector credit increased 12.3 percent. On
  y-o-y basis, deposits increased 14.6 percent and private sector credit 25.3 percent.

KATHMANDU: The y-o-y consumer price inflation stood at 5.97 percent in the seventh month of FY 2021/22 compared to 2.70 percent a year ago.

According to the current macroeconomic and financial situation report published by Nepal Rastra Bank (NRB) based on seven months’ data ending mid-February, 2022 food and beverage inflation stood at six percent whereas non-food and service inflation stood at 5.96 percent in the review month.

Under the food and beverage category, the prices of ghee & oil, vegetable, and pulses & legumes sub-categories rose by 20.68 percent, 14.07 percent and 9.36 percent respectively on y-o-y basis. Likewise, under the non-food and services category, the prices of transportation, education and furnishing & household equipment subcategories rose by 15.87 percent, 7.86 percent and 5.92 percent respectively on y-o-y basis.

In the review month, the Kathmandu Valley, Terai, Hill and Mountain witnessed 5.47 percent, 6.50 percent, 5.32 percent and 5.97 percent inflation respectively. Inflation in these regions was 2.12 percent, 2.78 percent, 3.30 percent and 2.05 percent respectively a year ago.

Wholesale Price Inflation

The y-o-y wholesale price of consumption goods, intermediate goods and capital goods increased 12.09 percent, 9.92 percent and 7.00 percent respectively. The y-o-y wholesale price of construction materials increased 16.61 percent in the review month.

The y-o-y salary and wage rate index increased 5.72 percent in the review month. Such a growth was 1.77 percent a year ago. In the review month, salary index and wage rate index increased 9.44 and 4.67 percent, respectively.

During the seven months of 2021/22, merchandise exports increased 88.3 percent to Rs.131.66 billion compared to an increase of 7.6 percent in the same period of the previous year. Destination-wise, exports to India and other countries increased 113.0 percent and 27.7 respectively whereas exports to China decreased 12.4 percent.

Exports of palm oil, soyabean oil, oil cakes, polyster yarn and thread, juice among others, increased whereas exports of cardamom, tea, herbs, wire, copper wire rod, among others, decreased in the review period.

During the seven months of 2021/22, merchandise imports increased 42.8 percent to Rs.1147.46 billion compared to an increase of 0.01 percent a year ago.

Destination-wise, imports from India, China and other countries increased 30.9 percent, 42.3 percent, and 83.8 percent respectively. Imports of petroleum products, medicine, crude palm oil, crude soyabean oil, transport equipment, vehicle and other parts, among others, increased whereas imports of M.S. billet, chemical fertilizer, cement, pulses, molasses sugar, among others, decreased in the review period.

Based on customs points, exports from Kanchanpur, Mechi, and Nepalgunj Customs Office decreased whereas exports from all the other major customs points increased in the review period. On the import side, imports from all the major customs points increased in the review period.

Total trade deficit increased 38.4 percent to Rs.1015.81 billion during the seven months of 2021/22. Such a deficit had contracted 0.7 percent in the corresponding period of the previous year.

Import ratio increased to 11.5 percent in the review period from 8.7 percent in the corresponding period of the previous year. During the seven months of 2021/22, merchandise imports from India by paying convertible foreign currency amounted Rs.128.17 billion. Such amount was Rs.104.13 billion in the same period of the previous year.

As per the Broad Economic Categories (BEC), the intermediate and final consumption goods accounted for 48.2 percent and 51.7 percent of the total exports respectively, whereas the ratio of capital goods in total exports remained negligible at 0.02 percent in the review period.

In the same period of the previous year, the ratio of intermediate, capital and final consumption goods remained 32.4 percent, 0.6 percent and 67.0 percent of total exports respectively

On the imports side, the share of intermediate goods remained 53.7 percent, capital goods 10.9 percent and final consumption goods remained 35.4 percent in the review period. Such ratios were 53.3 percent, 11.9 percent and 34.8 percent respectively in the same period of the previous year.

Remittance inflows decreased 4.9 percent to Rs.540.12 billion in the review period against an increase of 10.9 percent in the same period of the previous year. In the US Dollar terms, remittance inflows decreased 5.8 percent to 4.53 billion in the review period against an increase of 6.8 percent in the same period of the previous year.

Number of Nepali workers (institutional and individual-new and legalized) taking approval for foreign employment increased significantly to 200,102 in the review period. It had decreased 85.4 percent in the same period of the previous year.

The number of Nepali workers (Renew entry) taking approval for foreign employment increased 265.9 percent to 152,325 in the review period. It had decreased 73.1 percent in the same period of the previous year. Net transfer decreased 4.2 percent to Rs.603.73 billion in the review period. Such a transfer had increased 8.9 percent in the same period of the previous year.

Current Account and Balance of Payments

The current account remained at a deficit of Rs.413.86 billion in the review period compared to a deficit of Rs.104.39 billion in the same period of the previous year. In the US Dollar terms, the current account registered a deficit of 3.47 billion in the review period compared to deficit of 892.1 million in the same period last year.

In the review period, capital transfer decreased 19.4 percent to Rs.6.31 billion and net foreign direct investment (FDI) increased 80.6 percent to Rs.16.29 billion. In the same period of the previous year, capital transfer and net FDI amounted to Rs.7.83 billion and Rs.9.02 billion respectively.

Extended Credit Facility (ECF) of Rs.13.08 billion (USD 110.42 million) has been received from IMF during the review period. Balance of Payments (BOP) remained at a deficit of Rs.247.03 billion in the review period against a surplus of Rs.97.36 billion in the same period of the previous year.

In the US Dollar terms, the BOP remained at a deficit of 2.07 billion in the review period against a surplus of 817.6 million in the same period of the previous year.

Foreign Exchange Reserves

Gross foreign exchange reserves decreased 16.2 percent to Rs.1173.02 billion in mid-February 2022 from Rs.1399.03 billion in mid-July 2021. In the US Dollar terms, the gross foreign exchange reserves decreased 17.0 percent to 9.75 billion in mid-February 2022 from 11.75 billion in mid-July 2021.

Of the total foreign exchange reserves, reserves held by NRB decreased 17.7 percent to Rs.1024.60 billion in mid-February 2022 from Rs.1244.63 billion in mid-July 2021. Reserves held by banks and financial institutions (except NRB) decreased 3.9 percent to Rs.148.42 billion in mid-February 2022 from Rs.154.39 billion in mid-July 2021. The share of Indian currency in total reserves stood at 24.2 percent in mid-February 2022.

Fiscal Situation

During the seven months of 2021/22, total expenditure of the federal government according to data of Financial Comptroller General Office (FCGO), Ministry of Finance, stood at Rs.591.02 billion. The recurrent expenditure, capital expenditure and financial expenditure amounted to Rs.475.62 billion, Rs.60.79 billion and Rs.54.61 billion respectively in the review period.

In the review period, revenue mobilization (including the amount to be transferred to provincial and local governments) stood at Rs.613.41 billion. The tax revenue and non tax revenue amounted Rs.560.84 billion and Rs.52.57 billion respectively in the review period.

In the review period, federal government mobilized Rs.52.50 billion domestic debt including Rs.23.0 billion treasury bills and Rs.29.50 billion development bonds.