Current Macroeconomic and Financial Situation of Nepal

Current Macroeconomic and Financial Situation of Nepal

(Based on Five Month’s Data Ending Mid-December, 2020/21)

Source : Nepal Rastra Bank

Inflation

• The y-o-y consumer price inflation stood at 2.93 percent in the fifth month of 2020/21 compared to 6.55 percent a year ago. Food and beverage inflation stood at 5.23 percent whereas non-food and service inflation stood at 1.16 percent in the review month.

External Sector

• In five months of 2020/21, merchandise exports increased 5.1 percent to Rs.50.06 billion compared to an increase of 27.0 percent in the same period of the previous year.
• In five months of 2020/21, merchandise imports decreased 9.6 percent to Rs.525.50 billion compared to a decrease of 4.2 percent a year ago.
• Total trade deficit narrowed down 10.9 percent to Rs.475.44 billion in five months of 2020/21. Such deficit had contracted 6.3 percent in the same period of the previous year.
•  The export-import ratio increased to 9.5 percent in the review period from 8.2 percent in the same period of the previous year.
• Net services income remained at a deficit of Rs.21.29 billion in the review period compared to a deficit of Rs.3.01 billion in the same period of the previous year.
• Remittance inflows increased 10.9 percent to Rs.416.81 billion in the review period against a decrease of 0.2 percent in the same period of the previous year. In the US Dollar terms, remittance inflows increased 6.4 percent to 3.52 billion in the review period compared to an increase of 0.4 percent in the same period of the previous year.
• Number of Nepali workers (institutional and individual-new and legalized) taking approval for foreign employment decreased 77.9 percent in the review period. It had increased 11.8 percent in the same period of the previous year.
• The current account remained at a deficit of Rs.21.32 billion in the review period compared to a deficit of Rs.65.13 billion in the same period of the previous year.
• Balance of Payments (BOP) registered a surplus of Rs.106.48 billion in the review period as compared to a surplus of Rs.23.30 billion in the same period of the previous year. In the US Dollar terms, the BOP recorded a surplus of 896.5 million in the review period compared to a surplus of 205.9 million in the same period of the previous year.
• Gross foreign exchange reserves increased 5.2 percent to Rs.1474.34 billion in mid-December 2020 from Rs.1401.84 billion in mid-July 2020. In the US Dollar terms, the gross foreign exchange reserves increased 7.7 percent to 12.54 billion in mid-December 2020 from 11.65 billion in mid-July 2020. 
• The share of Indian currency in total reserves stood at 23.9 percent in mid-December 2020.
• Based on the imports of five months of 2020/21, the foreign exchange reserves of the banking sector is sufficient to cover the prospective merchandise imports of 14.4 months, and merchandise and services imports of 13.0 months.

Fiscal Situation

• Total expenditure of the federal government based on banking transactions (excluding direct payments and unrealized cheques) stood at Rs.306.66 billion. Such expenditure was Rs.287.84 billion in the corresponding period of the previous year.
• Revenue collection based on banking transactions (including the amount to be transferred to provincial and local governments) stood at Rs.301.23 billion. Total government revenue was Rs.337.71 billion in the corresponding period of the previous year.
• Balance at various accounts of the GoN maintained with NRB remained Rs.245.70 billion (including Provincial government and Local Authorities Account) in mid-December 2020.
• In the review period, total resource mobilization of provincial governments was Rs.61.27 billion. The federal government transferred Rs.37.43 billion as grants and revenue from divisible fund to provincial governments. The provincial governments have mobilized Rs.23.84 billion in terms of revenue and other receipts in the review period.

Monetary Situation

• Broad money (M2) expanded 7.4 percent in the  review period compared to the growth of 3.6 percent in the corresponding period of the previous year. On y-o-y basis, M2 expanded 22.5 percent in mid-December 2020.
• Domestic credit increased 6 percent in the review period  compared to the growth of 3.5 percent in the corresponding period of the previous year. On y-o-y basis, domestic credit increased 16.3 percent in mid-December 2020.
• Monetary Sector's claims on private sector increased 7.9 percent in the review period compared to a growth of 7.3 percent in the corresponding period of the previous year. On y-o-y basis, such claims increased 13.1 percent in mid-December 2020.
• Deposits at Banks and Financial Institutions (BFIs) increased 6.5 percent in the review period compared to a growth of 4 percent in the corresponding period of the previous year. On y-o-y basis, deposits at BFIs expanded 21.6 percent in mid-December 2020.
• The share of demand, saving, and fixed deposits in total deposits stands at 8.1 percent, 33.1 percent and 50.0 percent respectively in mid-December 2020. Such shares were 8.1 percent, 32.0 percent and 49.1 percent respectively a year ago. 
• The share of institutional deposits in total deposit of BFIs stands at 42.7 percent in mid-December 2020. Such share was 45.4 percent in mid-December 2019.
• Private sector credit from BFIs increased 7.1 percent in the review period compared to a growth of 6.2 percent in the corresponding period of previous year. On y-o-y basis, credit to the private sector from BFIs increased 12.9 percent in mid-December 2020.
• Outstanding loan of BFIs to agriculture sector increased 12 percent, industrial production sector increased 3 percent, construction sector increased 3.7 percent, transportation, communication and public sector increased 5.6 percent, wholesale and retail sector increased 5.9 percent and service industry sector increased 9.2 percent in the review period.
• In the review period, NRB mopped up Rs.161.80 billion liquidity including Rs.60 billion through reverse repo auction and Rs.101.80 billion through deposit collection instrument. Rs.30 billion liquidity was mopped up in the corresponding period of the previous year. Rs.90.07 billion liquidity was injected including Rs.39.52 billion through repo and Rs.50.55 billion through standing liquidity facility (SLF) in the corresponding period of the previous year.
• In the review period, NRB injected liquidity of Rs.221.84 billion through the net purchase of USD 1.87 billion from foreign exchange market. Liquidity of Rs.161.58 billion was injected through the net purchase of USD 1.42 billion in the corresponding period of the previous year.
• The NRB purchased Indian currency (INR) equivalent to Rs.191.96 billion through the sale USD 1.62 billion in the review period. INR equivalent to Rs.197.59 billion was purchased through the sale of USD 1.74 billion in the corresponding period of previous year.
• The outstanding amount of refinance provided by this bank is Rs. 24.11 billion in mid-December 2020.
• As of mid-December 2020, the outstanding concessional loan is Rs.86.30 billion extended to 52,048 borrowers. Of which, Rs.68.69 billion has been extended to 30,807 borrowers for selected agriculture and livestock businesses, whereas concessional loan to other sectors has been disbursed Rs.17.61 billion to 21,241 beneficiaries.
• In the review period, BFIs did interbank transactions Rs.207.09 billion including inter-bank transactions among commercial banks Rs.128.53 billion and among other financial institutions (excluding transactions among commercial banks) Rs.78.56 billion. In the corresponding period of previous year, such transaction was Rs.872.05 billion including Rs 797.90 billion among commercial banks and Rs.74.16 billion among other financial institutions (excluding transactions among commercial banks). 
• The average base rate of commercial banks decreased to 7.36 percent in mid-December 2020 from 9.46 percent a year ago. Weighted average deposit rate and lending rate of commercial banks stood at 5.14 percent and 9.37 percent respectively in mid-December 2020. Such rates were 6.80 percent and 11.93 percent respectively a year ago.
• After introduction of merger and acquisition policy aimed at strengthening financial stability, the number of BFIs involved in this process reached 211. Out of which, the license of 159 BFIs was revoked thereby forming 52 BFIs.
• Of the total 753 local levels, commercial banks extended their branches at 749 levels as of mid-December 2020. The number of local levels having commercial bank branches was 743 a year ago.
• The total number of BFIs licensed by NRB decreased to 144 in mid-December 2020 (Table 4). As of mid-December 2020, 27 commercial banks, 19 development banks, 21 finance companies, 76 microfinance financial institutions and 1 infrastructure development bank are in operation. The number of BFIs branches reached 10,086 in mid-December 2020 from 9765 in mid-July 2020.

Capital Market

• NEPSE index stood at 2061.4 in mid-Dec 2020 compared to 1154.1 in mid-Dec 2019. Such index was 1362.4 in mid-July 2020.
• Stock market capitalization in mid-Dec 2020 stood Rs. 2763.66 billion compared to Rs. 1792.76 billion in mid-Jul 2020.
• Number of companies listed at NEPSE stood 212, out of which 144 are Bank and Financial Institutions (BFIs) and insurance companies, 35 hydropower companies, 19 manufacturing and processing industries, 4 hotels, 4 trading companies and 6 others. The number of companies listed at NEPSE was 212 in mid-July 2020.
• Share of BFIs and insurance companies in stock market capitalization is 71.1 percent. Such share for hydropower companies is 6.5 percent, manufacturing and processing industries 4.2 percent, hotels 1.0 percent, trading companies 0.4 percent and the share of other sector companies is 16.7 percent.