The macroeconomic report of the last fiscal year made public by the Nepal Rastra Bank (NRB) on Sunday showed noticeable improvement in most of the economic indicators such as foreign exchange reserves, balance of payment (BOP), tourism income, and remittance inflow among others.
However, the economy is yet to be vibrant, economists say.
As per the NRB report, Nepal's Balance of Payment (BOP) is at a surplus of Rs 502.491 billion by the end of the last fiscal year compared to a surplus of Rs 285.82 billion in previous fiscal year, 2022/23.
The country's foreign exchange reserves increased by 32.6% to Rs 2041.10 billion in a year from Rs 1539.36 billion in mid-July 2023. In US dollar terms, the gross foreign exchange reserves increased by 30.4 % to $15.27 billion from $11.71 billion, sufficient to cover merchandise imports for 15.6 months, and merchandise and services imports of 13 months.
According to NRB, the remittance inflow surged last fiscal year despite less Nepalis going overseas for jobs.
The remittance inflow increased by 16.5% to Rs 1445.32 billion during 2023/24. In US Dollar terms, remittance inflow increased by 14.5% to $10.86 billion in the review year compared to an increase of 13.9% in the previous year.
However, the number of Nepali workers, both institutional and individual, taking first-time approval for foreign employment stood at 460,103 and 281,199 others renewed their entry. The figures were 497,704 and 277,272, respectively, in the previous fiscal year, the report says.
Nepal also saw an increase in tourist arrivals, resulting in the rise in tourism earnings.
The country welcomed over 1.12 million tourists last fiscal year, compared to 862,992 in the previous year, contributing to a 32.1% rise in tourism earnings to Rs 82.32 billion in FY 2023/24 from Rs 62.3 billion in 2022/23, NRB’s macroeconomic report shows.
Meanwhile, the current account, which had remained at a deficit of Rs 46.57 billion in the previous year, stood at a surplus of Rs 221.34 billion in the review year.
Nepal also received more Foreign Direct Investment (FDI) last fiscal year.
The FDI to the country surged by 36.1% to Rs Rs 8.4 billion in the period from Rs 6.17 billion in FY 2022/23.
The NRB report also shows that consumer inflation declined significantly in the last fiscal year.
The year-on-year consumer price inflation came down to 3.57% in mid-July 2024 from 7.44% a year ago, while the annual average consumer price inflation stood at 5.44% in FY 2023/24 compared to 7.74% a year ago.
The annual average food and beverage category inflation stood at 6.47% in FY 2024 compared to 6.62% a year ago whereas non-food and service inflation came down to 4.64%.
Under the food and beverage category, the highest price hike was seen in spices as the annual average consumer price index of this subcategory increased by 26.40 %.
According to NRB, the rate of inflation in the Kathmandu Valley, Terai, Hill, and Mountain belts declined to 5.99%, 4.82%, 5.78% and 6.86%, respectively, from 7.55%, 8%, 7.56% and 7.12% in the previous fiscal year.
Though the trade deficit fell by 1%, it still stands at Rs 1440.60 billion in the review year.
Economist Jagdish Chandra Pokharel said that the domestic sector is yet to be vibrant.
“Most of the industries, especially the small and medium-sized enterprises (SMEs), have been operating at less than 40% of their capacities,” said Pokharel, who is also the former vice-chairman at the National Planning Commission. “Though the economic activities seem to have increased slightly in recent months, most of the shutters continue to remain shut in the market.”
Pokharel believes economic activities will gain momentum in the coming days as people tend to spend more during the festival season.
The banks and financial institutions failed to meet their credit expansion goal in the last fiscal year, signalling low demand and sluggish economic activities.
While the deposits at Banks and Financial Institutions (BFIs) increased by Rs 742.37 billion, or 13% in the review year compared to an increase of Rs
627.25 billion or 12.3% in the previous year, the credit expansion to the private sector increased by Rs 276.94 billion or 5.8 percent in the period compared to an increase of Rs 175.94 billion or 3.8% in the previous year.
The target was to grow credit expansion to the private sector by 11.5% in the last fiscal year.
Economist Pokharel argues the authorities concerned need to take a sector wise approach to address the issues surrounding low demand and credit expansion.
Nepal’s imports and exports, which had declined by 16.1% and 21.4%, respectively, in the previous fiscal year, 2022/23, fell by 1.2% and 3%, respectively, in the last fiscal year.
Though the trade with China increased in the last fiscal year, it did not help reduce the trade deficit with the northern neighbour, which stands at Rs 296.1 billion, according to Department of Customs statistics, around 20.5% of the country’s total trade deficit.
Nepal’s import from and export to the northern neighbour in the last fiscal year remained at around Rs. 298.7 billion and around Rs. 2.5 billion, respectively.
Highlights:
* BOP at a surplus of Rs 502.491 billion
* Forex reserves increased by 32.6% to Rs 2041.10 billion
* Forex reserves sufficient to cover merchandise imports for 15.6 months, and merchandise and services imports of 13 months
* Remittance inflow increased by 16.5% to Rs 1445.32 billion
* Tourism earnings increased by 32.1% to Rs 82.32 billion
* FDI surged by 36.1% to Rs Rs 8.4 billion
* Annual average consumer price inflation stands at 5.44%
* Curent account at a surplus of Rs 221.34 billion
* Credit expansion to the private sector increased by 5.8%
* Trade deficit fell by 1% to Rs 1440.60 billion