Improving remittance inflow raises economic prospects

By Laxman Kafle,Kathmandu, Oct. 18: With the continuous improvement in remittance inflows, the external sector of the country has seen a further improvement.

The improving foreign currency reserves, balance of payment, current account and remittance inflows has been witnessed until mid-September of the current fiscal year 2023/24.

The current macroeconomic and financial report based on the first two months of the current fiscal year made public by Nepal Rastra Bank (NRB) on Tuesday showed that there has been further improvement in foreign currency reserves, balance of payments and remittance inflows.

However, the inflation has remained high during the review period.

According to NRB, consumer price inflation has remained at 8.19 per cent in the two months of the current fiscal year while it was 8.64 per cent a year ago.

The y-o-y consumer price inflation was 7.52 per cent in mid-August 2023.

However, the inflation is still higher than the set target in the current fiscal year. The budget of the government for 2023/24 and monetary policy has set the goal of maintaining inflation at 6.5 per cent.

The food and beverage inflation stood at 9.74 per cent whereas non-food and service inflation stood at 6.99 per cent in the review month.

Under the food and beverage category, on y-o-y basis, the price index of spices sub-category increased by 45.46 per cent, sugar and sugar products by 17.86 per cent, vegetable by 14.51 per cent, cereal grains and their products by 13.38 per cent, milk products and eggs by 12.60 per cent and restaurant and hotel 10.97 per cent. In the review months, the y-o-y price index of ghee and oil sub-category decreased by 13.08 per cent.

Remittance earning crosses Rs. 228.37 billion

The growth rate of remittance has increased during the review period as compared to the same period last year.

Remittance inflows increased by 22.1 per cent to Rs. 228.37 billion in the review period compared to an increase of 19.8 per cent in the same period of the previous year.

The country has received remittance of around Rs. 112.35 billion in the month of Bhadra (from mid-August to mid-September) alone.

In the US dollar terms, remittance inflows increased by 17.7 per cent to 1.73 billion in the review period compared to an increase of 11.3 per cent in the same period of the previous year.

Number of Nepali workers (institutional and individual-new) taking approval for foreign employment decreased 28.3 per cent to 74,455 in the review period, said the NRB.

The number of Nepali workers (renew entry) taking approval for foreign employment decreased 18.3 per cent to 32,004 in the review period.

It had increased by 70.6 per cent in the same period of the previous year.

Net transfer increased 21.9 per cent to Rs. 251.61 billion in the review period. Such a transfer had increased 19.5 per cent in the same period of the previous year.

Foreign exchange reserve reaches Rs. 1,599 billion

According to NRB, gross foreign exchange reserves increased by 3.9 per cent to Rs. 1,598.9 billion in mid-September 2023 from Rs. 1,539.36 billion in mid-July 2023.

In the US dollar terms, the gross foreign exchange reserves increased 2.6 per cent to 12.01 billion in mid-September 2023 from 11.71 billion in mid-July 2023.

Of the total foreign exchange reserves, reserves held by NRB increased by 4.5 per cent to Rs. 1,406.52 billion in mid-September 2023 from Rs. 1,345.78 billion in mid-July 2023.

Reserves held by banks and financial institutions (except NRB) decreased by 0.6 per cent to Rs. 192.38 billion in mid-September 2023 from Rs.193.59 billion in mid-July 2023. The share of Indian currency in total reserves stood at 21.7 per cent in mid-September 2023.

Based on the imports of two months of 2023/24, the foreign exchange reserve of the banking sector is sufficient to cover the prospective merchandise imports of 12.6 months, and merchandise and services imports of 10.3 months, said the report.

Improvement in both current account and BOP surplus 

Meanwhile, the current account, which has been in deficit most of the time, is in surplus for the second month in a row.

The current account remained at a surplus of Rs. 23.50 billion in the review period against a deficit of Rs. 36.84 billion in the same period of the previous year.

In US dollar terms, the current account registered a surplus of 177.7 million in the review period against a deficit of 289 million in the same period last year.

In the review period, capital transfer decreased by 41.7 per cent to Rs. 850.8 million and net foreign direct investment (FDI) remained a positive of Rs. 3 billion.

In the same period of the previous year, capital transfer amounted to Rs. 1.46 billion and net FDI registered a negative of Rs. 809.7 million.

Similarly, balance of payments (BOP) remained at a surplus of Rs. 53.61 billion in the review period against a deficit of Rs. 20.81 billion in the same period of the previous year. 

In US dollar terms, the BOP remained at a surplus of 405.6 million in the review period against a deficit of 163.4 million in the same period of the previous year.