28 Sep 2020,
Kathmandu, Nepal.
Nepal Rastra Bank recently published data on current macroeconomic and financial situation in the first month for the year ended 2020/21. Let's look at the figures under their respective topics:
Inflation:
Consumer Price Inflation:
Firstly, let's see what has happened to inflation at consumer level. Y-o-Y inflation stood at 3.49 percent in mid-August. This figure was 6.95 percent a year ago. This can be further analysed by looking at two headings: Food and Beverage & Non-food and service. During the period of a year, inflation of food and beverage stood at 5.38 percent whereas non-food and service stood at 2.04 percent. Previous year, they were 8.02 and 6.12 percent respectively.
Then, if we look at the main driver of inflation under the heading food and bevearage we can clearly see that pulses and legumes followed by meat and fish and tobacco products prices rose significantly during the one year period. And, under non-food and service miscellaneous goods and services had increased the most 12.30 percent when compared to mid-Aug 2019. Another interesting thing is that the vegetables which was only 125.93 has increased by 28.21 percent and reached 161.46 when compared to past month.
In the review year, Mountain, Hill, Kathmandu Valley and Terai witnessed 4.07%, 2.72%, 3.31% and 4.02% inflation respectively. A year ago, the figures for the region were 5.57%, 6%, 8.63% and 6.46% respectively.
The overall inflation at wholesale level stood at 7.33% during the period compared to 8.26% a year ago. Food segment had the highest inflation of 15.23%.
From a broad perspective, intermediate goods prise rose significantly during the review year. It had increased by 8.10 percent followed by consumption goods (7.44%) and capital goods (2.63%).
However, the wholesale price of construction material decreased 2.33 percent during the review term.
Salary and Wage Index:
The salary and wage index increased 1.34 percent in one year's span compared to 13.43 percent last a year ago. The last year's increase was due to increment in salary of private institutions and government employees. During the review period, non-officers of bank and financial institutions salary has increased the most 24.77%.
External Sector:
Exports:
In the first month of 2020/21, merchandise worth Rs. 9.62 billion was exported. Out of which 65.68% was exported to India, 33.74% to other countries and 0.006% to China. In the corresponding year, total mechanside export amounted to Rs. 8.84 billion. The growth rate for current year and previous year is 8.9% and 27.7% respectively. If we compare the growth rate to earlier years, it has decreased significantly which is could be due to COVID. But, lets not conclude immediately the composition of demand decline could provide further information of this. Hmmm.....looking at the figures... Juice worth only Rs. 134.5 million was exported which is 61 percent decrease when compared to other commodities. It was followed by wire, zinc sheet, tooth paste, pulses, rosin, cardamom, textiles and others. However, Herbs export increased significantly 175.2%. Followed by, noodles, pashmina, tea, medicine (ayurvedic), etc. COVID seems to have had impact on disposable income of people so the demand for capital goods and luxury goods have decreased.
India's share in total export decreased 2.8% and stood at 65.7%. Similarly, China's share has also contracted from 2.2% to 0.6% whereas others countries shares has increased.
Import:
During the review period, merchandise imports decreased 19.6 percent to Rs. 85.81 billion. In the previous year, it decreased 11.5 percent. Destination-wise, imports from china, india and other nation decreased by 39.7 percent, 16.8 percent and 10.5 percent respectively. Commodity-wise, import of petroleum products decreased the most 52.4 percent. Similary, electrical goods (48.63%), M.S. billet(46.7%), hot-rolled sheet (46.3%), other machinery and parts (36.1%), transport equipment and part (36%), readymade garments (32.5%), medicine (31.7%), thread (30.1%), chemical fertilizer (23.8%) electrical equipment (9.6%) and fruits (3.6%) drcreased. However, imports of edible oil, rice, crude soyabean oil, telecommunication equipment, coal, textiles, vegetables, medical equiment and tools increased in the review period. Nepal's annual bill of petrol for last year was 163.70 billion (6% of GDP) whereas the bill for the earlier year was enourmous Rs. 215.76 billion.
India's share in imports is at a all time high during the 3 year period. However, China's share decreased 4.4% compared to last year.
Customwise Trade:
Exports from Nepalgunj Customs office increased most by 157% to Rs. 192.4 million. Similarly, in percentage basis Krishnanagar customs office increased 76.8 percent, followed by Bhairahawa, Mechi and Tribhuwan Airport customs. However, exports from Rasuwa cusma office, Kanchanpur customs office, Biratnagar customs office, Dry Port customs office and others custom office declined. Important think to note is that even though the percentage increase in Krishnanagar and Nepalgunj customs if high, there share in total exports if only 0.23% and 2% respectively.
Let's look at imports, imports from Kanchanpur, Tatopani, Kailali, Krishnagar, Nepalgunj and Bhairahawa increased whereas imports from other custom offices decreased in the review period.
Export-Import Price Index:
The export unit value price index increased 0.5 percent from 99.4 and stood at 99.9. However, import price index decreased 3.8 percent from 98.4 and stood at 94.7. Additionally, terms of trade (ToT) increased 4.4 percent in the review month compared to an increase of 3.1 percent in the corresponding month of the previous year.
Foreign Employment:
People were unable to travel for employment as the air services remained closed. In 2019, 17,540 people received clearances whereas in 2020 only 140 people received travel approval from Department of Foreign Employment. In case of renewal, the figures dropped by 80 percent compared to an decrease of 1.3 percent in the corresponding month of the previous year.
Remittance:
Remittance inflows from employees abroad increased by 23 percent to Rs. 92.71 billion in the review month compared to an increase of 2 percent in the same period of the previous year.
In USD terms, remittance inflows increased 14.5 percent compared to an increase of 0.7 percent in the same period lastyear.
Current Account and Balance of Payment:
The current account remained positive in the review period which is normally negaitve because we tend to import more than export. It stood at Rs. 25.41 billion compared to Rs. 9.34 billion deficit in the corresponding month of the previous year. In USD terms, current account recorded a surplus of 212.1 million compared against a deficit of 83.8 million in the same period of the previous year.
In the review period, capital transfer increased 6.7 percent from Rs. 1.03 billion to Rs. 1.1 billion. However, foreign direct investment decreased 3.3 percent from Rs. 1.44 billion to Rs. 1.40 billion.
Let's look at the Balance of Payment (BOP), there has been a massive surplus of Rs. 51.46 billion from Rs. 6.05 billion. This can be attributed to massive drop in imports! In USD terms, BOP recored a surplus of 429.4 million up from 54.2 million in the same period of the previous year.
Foreign Exchange Reserves:
Alright without looking at the figures, i guess it must be better than before. But, i still have a doubt because a 50% increase is nothing when the value is 10 whereas even if the drop is 50% and the value is 100 it still represents a huge chunk! And lets not forget another import factor - EXCHANGE RATE FLUCTUATIONS!!!
Gross foreign exchange reserves increased 2.5 percent to Rs. 1436.73 billion from 1401.83 billion in the mid-July 2020. In USD terms, it increased 3.2 percent from 11.65 billion to 12.02 billion in a span of one month.
The reserves held by NRB increased 2.8 percent from Rs. 1226.12 billion in mid-July to Rs. 1260.38 billion. Similarly, reserves held by other bank financial institutions (except NRB) increased 0.4 percent from Rs 175.71 billion to Rs. 176.36 billion. Indian currency's share out of the reserve was 23 percent in the review period.
Foreign Exchange Adequacy:
Adequacy to import has increased significantly. Reserve is enough for import of merchandise for 17.3 months and for 15.6 months in case of merchandise along with services. Another import ratios are reserves-to-GDP, reserves-to-imports and reserves-to-M2. And, they stood at 38.1 percent, 129.7 percent and 33.8 percent. Reserves to imports ratio has improved significantly, which stood at 105.7 percent in the corresponding month of the previous year.
Price of Oil, Gold and Dollar:
The price of oil decreased 24 percent from $59/barrel to $44.86/barrel.
In case of gold, the price increased 28.3 percent from $1515.25/ounce to $1944.75/ounce.
Exchange rate:
One dollar was worth Rs. 113.55 in mid-August 2019. And, in the same month of 2020, it had appreciated by Rs. 6 and is worth Rs. 119.55.
Fiscal Situation:
Federal Government:
In the first month of 2019/20, the fiscal position stood at surplus of Rs. 58.93 billion. However, in the earlier month of the previous year it stood at Rs. 76.97 billion. This isn't bad as long as the expenditures are of capital nature. However, in the review period, this isn't the case, because in 2019 provincial level and lovel level transfer's weren't recorded.
Total expenditure of federal government based on banking transactions (excluding direct payments and unrealised cheques) was Rs. 1.95 billion whereas in the corresponding month of earlier year was Rs. 2.62 billion.
The revenue of federal government was Rs. 58.81 billion whereas in the previous year it was Rs. 79.59 billion.
The government's cash balance stood at Rs. 196.56 billion. It includes grants and revenue transfers from Federal Government and resources collected by provincial government.
Provincial Government:
In the mid-August 2020, provincial government's revenue was Rs. 8.05 billion. Out of which, Rs 4.02 billion was tranferred from federal government as grants and revue from divisible fund. And, the rest of the money was provincial government's revenue's and other receipt.
Monetary Situation:
Money Supply:
Broad Money increased 0.3 percent compared to contraction of 0.4 percent in corrresponding period of previous year. On Y-o-Y basis it expanded by 18.9 percent.
Net Foreign assets after adjusting for foreign exhange gains/losses stood at Rs. 1373.77 billion up by 3.9 percent.
Similarly, reserve money increased by 37 percent whereas last year it had increased by 10.2 precent.
Domestic Credit:
Domestic credit during the review period decreased 1.4 percent compared to contraction 1.1 percent last year. However, on Y-o-Y basis, it increased by 13.3 percent.
In private sector, there are no claims increase in the review period whereas it was grown 1.1 percent last year. However, on Y-o-Y basis, it increased by 11.3 percent during the review period.
Deposit Mobilization:
Deposits at Bank and Financial Institutions (BFIs) decreased 0.1 percent in the review period. However, on Y-o-Y basis, deposits at BFI's expanded by 19 percent.
Similarly, lets look at the composition. The share of demand, savings, fixed deposits and others stands at 7.7 percent, 32.2 percent, 50.6 percent and 9.5 percent respectively. Last year it stood at 7.9 percent, 32.9 percent, 48 percent and 48 percent and 10.4 percent.
Credit Disbursement:
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