External pressure on economy eases

By Laxman Kafle,Kathmandu, Jan. 14: External pressure on the economy has been softening for the past few months because of an increase in remittance inflows and contraction in the trade deficit caused by a decrease in imports.

The foreign currency reserves, balance of payment (BoP) and remittance inflows are improving, so the external pressure on the economy has reduced.

The policy of controlling imports introduced to reduce the pressure on the external sector of the economy created by high imports has yielded the expected results. 

However, there is a challenge in sustaining the improvement seen in the external sector, as the government had lifted the ban imposed on imports effective from December 16, 2022. 

A current macroeconomic and financial report based on five months of the current fiscal year published by Nepal Rastra Bank on Friday showed that  foreign currency reserves, BoP and remittance inflows have, of late,  improved.

According to the NRB report, gross foreign exchange reserves increased by 6.3 per cent to Rs. 1292.56 billion in mid-December 2022 from Rs.1215.80 billion in mid-July 2022.

In the US dollar terms, the gross foreign exchange reserves increased by 3 per cent to 9.82 billion in mid-December 2022 from 9.54 billion in mid-July 2022.

Of the total foreign exchange reserves, reserves held by the NRB increased by 7.8 per cent to Rs.1139.22 billion in mid-December 2022 from Rs.1056.39 billion in mid-July 2022.

Reserves held by banks and financial institutions (except NRB) decreased by 3.8 per cent to Rs. 153.34 billion in mid-December 2022 from Rs.159.41 billion in mid-July 2022.

The share of Indian currency in total reserves stood at 22.9 per cent in mid-December 2022.

Based on the imports of five months of 2022/23, the foreign exchange reserves of the banking sector are sufficient to cover the prospective merchandise imports for 10 months, and merchandise and services imports for 8.7 months.

A year ago, foreign exchange reserves of the banking sector was sufficient to cover the prospective merchandise imports of only 7.4 months, and merchandise and services imports of 6.7 months.

In the meantime, the country’s trade deficit has decreased by 18.8 per cent to Rs. 597 billion during the first five months of the current fiscal year as compared to the same period last year. During the review period, the import decreased by 20.7 per cent and export by 34.6 per cent.

Such a deficit had increased by 54.7 per cent in the corresponding period of the previous year.

The export-import ratio decreased to 10.1 per cent in the review period from 12.3 per cent in the corresponding period of the previous year.

Remittance inflow up by 23 %

Remittance inflows increased by 23 per cent to Rs. 480.50 billion in the review period against a decrease of 6.3 per cent in the same period of the previous year.

In the US dollar terms, remittance inflows increased by 13.1 per cent to 3.71 billion in the review period against a decrease of 6.8 per cent in the same period of the previous year.

Net transfer increased by 21.6 per cent to Rs.530.06 billion in the review period. Such a transfer had decreased by 5.3 per cent in the same period of the previous year.

With the increase in the number of Nepalis going abroad for foreign employment, the remittance inflow has increased.

Current account deficit drops, BoP in surplus

The current account remained at a deficit of Rs.37.91 billion in the review period compared to a deficit of Rs. 298.51 billion in the same period of the previous year.

In US dollar terms, the current account registered a deficit of 297.2 million in the review period compared to the deficit of 2.51 billion in the same period last year.

In the review period, capital transfer decreased by 25.3 per cent to Rs. 3.47 billion and net foreign direct investment (FDI) remained Rs. 604.9 million.

In the same period of the previous year, capital transfer and net FDI amounted to Rs. 4.64 billion and Rs.7.07 billion respectively.

Similarly, BoP remained at a surplus of Rs. 45.87 billion in the review period compared to a deficit of Rs. 195.01 billion in the same period of the previous year. 

In US dollar terms, the BoP remained at a surplus of 346.8 million in the review period against a deficit of 1.64 billion in the same period of the previous year.