Nepalese Economy post embargo

Nepalese economy had expected a growth rate of 4.6 percent pre earthquake, the disaster mercilessly stuck Nepal on April 2015 causing an estimated loss of $371 Million. After the tragic incident, Nepal Rastra Bank targeted a growth rate of 3 percent just in case if the economic environment goes as expected. This time again, the negligence of government to hear the grievances of Terai led a fierce protest against draft of the new constitution resulting strikes for more than 4 months. On the other side, the tension resulted as unofficial economic embargo by the southern neighborhood causing cut off of the supplies- from gasoline products to raw materials for industries. The custom check points are almost paralyzed with no any significant collection of revenue and industries are shut down lacking raw materials for production. The recent four monthly economic survey 2073/73 reports the economic growth to be stagnant at 2 percent despite the expectation of 6 percent.

The situation is not so favorable for agriculture as well. Ministry of Agriculture reports the rice yield is likely to decline by 10 percent and buck wheat by 2 percent in comparison to that of previous fiscal year. However, production of Maize is expected to incline by 4 percent. If the embargo remains then production of wheat will ultimately fall down as there will be not enough chemical fertilizers and seeds for cultivation. Expectation of agricultural growth rate of more than 1 percent would be irrational in context to the current scenario.

Inflation

The year-to-year Consumer Price inflation reached to 10.4 percent at the end of Mid November 2015 which is 3.2 percent higher if compared to that the last year whereas the rate of inflation is 5.4 percent in India. The cut off of basic supplies has led to unhealthy growth of inflation as 11.4 percent in Kathmandu, 9.6 percent on Himalayan region, 9.1 at Terai region. Preceding year, the inflation growth rate at Kathmandu was 7.1 percent and 7.2 percent on both Terai and Himalayan region. The black marketing of the basic supplies has ultimately resulted in unsound and unethical rise in price of goods. Earthquake, Strikes on Terai and economic embargo are the main reasons for such increase in inflation rate.

External Sector

Foreign Trade

The merchandised export on Nepal decreased significantly by 29.1 percent to Rs.20.96 Billion in the first four months of 2015/16 compared to a decline of 0.2 to Rs. 29.55 Billion in the previous year. Such a fall in merchandised trade was resulted due to significant decline in trade with India, China and other nation 38.7, 67.9 and 7.8 percent respectively.

Similarly, the import rate too declined by 36.8 percent to Rs.160.99 Billion. Such imports had gone up by 22.4 percent to Rs.254.66 Billion. Blockade in supply of petroleum goods is one of the major factor such decrease in rate of import.

Transfer

The gross transfer receipt increased by23.2 percent to Rs.249.58 billion and gross transfer payment increased by 16.6 percent to Rs.835.9 percent. However the net total receipt increased by 23.2 percent to Rs.248.74 billion. Net transfer receipt had decline by 3 percent in the previous fiscal year 2014/15.

BOP Situation

The BOP surplus of Nepal amounts to Rs. 83.33 billion during the period of review period compared to that of Rs. 6.18 billion in the same period of previous year.

Foreign Reserve

The gross foreign reserve increased by 12.5 percent to Rs.926.79 billion at Mid-November 2015 from Rs.823.87 billion of Mid-July 2015. The foreign reserve had increased by only 2.4 percent in the previous year.

Money Supply

The broad money supply(M2) increased by 6.8 percent in the first four months of 2015/16 compared to an increase of 2.8 percent in the corresponding period of previous year. Narrow money supply (M1) which had decreased by 0.5 percent in the corresponding period of previous year increased by 14.9 percent in the review period.

Liquidity Management

Nepal Rastra Bank mopped up a total amount of Rs.242.65 billion through various instruments of liquidity management. These consisted of Rs.157.25 billion from deposit auction, Rs.76.30 billion from Reverse Repo and Rs. 9.10 billion from outright sales.

Similarly NRB injected net liquidity of Rs.154.28 billion through the purchase of USD worth Rs.1.48 billion from foreign exchange market. The NRB also purchased Indian Currency (IC) worth Rs.79.19 billion through the sale of USD 760 million till the review period.

Financial Broadening

Expansion of branch networks of Bank and Financial institution has widened to access the finance and for monetization of economy. The number of branches of BFI’s have reached to 3968 from 3617 of the previous year. The growth in the deposit and loan accounts has also contributed to broaden the financial access of the people.

                                             source: nrb.org.np