Economic reforms and inflation trends highlight NRB’s macroeconomic and financial report

KATHMANDU: Nepal Rastra Bank’s Economic Research Department has released its Current Macroeconomic and Financial Situation of Nepal, highlighting the nation’s economic performance based on three months’ data ending mid-October for fiscal year 2024/25. The report showcases significant changes in consumer price inflation, trade, foreign reserves, and other key economic indicators, offering insights into the country’s financial health.

Consumer Price Inflation Eases to 4.82 Percent
Nepal’s year-on-year (y-o-y) consumer price inflation moderated to 4.82 percent in mid-October 2024, down from 7.50 percent during the same period last year. The food and beverage inflation stood at 7.18 percent, while non-food and services inflation remained at 3.49 percent. This marks a notable improvement compared to the 8.48 percent and 6.85 percent increases in these categories respectively in the previous year.

Under the food and beverage category, the vegetable sub-category saw the sharpest rise, with prices increasing by 25.15 percent. Pulses and legumes rose by 10 percent, followed by cereal grains and their products at 9.57 percent. In contrast, prices for meat and fish, spices, and sugar declined by 1.18 percent, 0.79 percent, and 0.78 percent, respectively.

Non-food categories reflected moderate inflation, with miscellaneous goods and services rising 10.49 percent, alcoholic drinks increasing 6.32 percent, and clothing and footwear up by 6.12 percent.

Regional and Provincial Inflation Variances
Rural areas recorded a slightly higher inflation rate of 5.00 percent compared to 4.76 percent in urban regions. Across Nepal’s provinces, Sudurpashchim Province registered the highest y-o-y inflation at 6.56 percent, while Karnali Province had the lowest at 3.25 percent. The Kathmandu Valley recorded a 4.50 percent inflation rate, with the Terai, Hill, and Mountain regions experiencing rates of 5.23 percent, 4.32 percent, and 5.08 percent, respectively.

Trade Performance: Declining Exports and Imports
Nepal’s merchandise exports fell by 6.1 percent to Rs. 38.38 billion during the review period, with significant drops in exports to India (-5.3 percent), China (-24.8 percent), and other countries (-6.6 percent). Key export items such as zinc sheets, palm oil, and readymade garments saw declines, while products like soybean oil, tea, and shoes recorded growth.

Merchandise imports also declined by 4.2 percent to Rs. 390.75 billion, led by reduced imports of gold, petroleum products, and electrical equipment. Imports from India, China, and other nations fell by 3.9 percent, 1.5 percent, and 7.9 percent, respectively.

Trade Deficit and Export-Import Ratio
The trade deficit narrowed by 4.0 percent to Rs. 352.37 billion during the review period. Despite this improvement, the export-import ratio decreased slightly to 9.8 percent from 10.0 percent in the same period last year.

Foreign Reserves and Balance of Payments (BOP)
Nepal’s gross foreign exchange reserves increased by 9.4 percent to Rs. 2232.28 billion by mid-October 2024. This surge is sufficient to cover 17.6 months of merchandise imports and 14.6 months of merchandise and service imports. The Balance of Payments (BOP) surplus rose significantly to Rs. 184.99 billion, compared to Rs. 101.66 billion in the previous year.

The terms of trade index improved by 6.5 percent, supported by a 2.9 percent increase in export prices and a 3.5 percent decline in import prices. Notably, remittance inflows surged by 11.5 percent to Rs. 407.31 billion, underpinning Nepal’s foreign currency reserves.

Government Revenue and Expenditure
The Government of Nepal’s total expenditure reached Rs. 329.20 billion during the three months of FY 2024/25. Of this, recurrent expenditure accounted for Rs. 229.85 billion, capital expenditure Rs. 29.37 billion, and financial expenditure Rs. 69.97 billion. Total revenue mobilization, including provincial and local government transfers, stood at Rs. 248.26 billion, with tax revenue constituting Rs. 219.68 billion.

Monetary and Banking Indicators
Broad money (M2) grew by 3.4 percent during the review period, while private sector credit increased by 2.5 percent. On a y-o-y basis, credit to the private sector expanded by 6.0 percent. Deposits at banks and financial institutions rose by 2.6 percent, reflecting a stable banking sector.

Sectoral Credit Distribution
Banking institutions extended increased credit to sectors such as transportation (4.7 percent), service industries (2.6 percent), and wholesale and retail (2.3 percent). However, credit to the agricultural sector declined by 0.4 percent, highlighting potential challenges in this vital area of Nepal’s economy.

Global Economic Context
In comparison to Nepal’s 4.82 percent inflation rate, India’s inflation stood higher at 6.21 percent during the same period. The international crude oil price dropped by 20.4 percent to USD 73.65 per barrel, while gold prices soared by 38.7 percent to USD 2675.25 per ounce.

Nepal’s economy displayed mixed results in the first quarter of FY 2024/25, with positive developments in inflation moderation and foreign reserves but persistent challenges in trade and sectoral credit distribution. The data underscores the need for targeted policies to sustain economic stability while addressing weaknesses in trade and agriculture.