Nepal's Economy Contracted by 2 percent due to COVID-19 in 2020

The Central Bureau of Statistics (CBS) of Nepal has published the revised estimates about the growth performance of the Nepali economy in 2020 on March 4, 2021. As per the estimates, Nepali economy contracted by 1.99 percent in 2020. This is the second shock in the economy after the devastating earthquake of 2015/16 during which the growth rate fell to zero percent. 

After 2016/17 onward,  Nepali economy was growing by more than 7 percent on the average. However, the COVID crisis severely affected the economic activities as such the growth performance was accordingly affected. 

  In terms of sector-wise performance,  accommodation industry, transport and manufacturing were hard hit by the COVID crisis.  The accommodation industry contracted by 25.72 percent in 2020 compared to a growth of 9.92 percent in the previous year.

On the quarterly basis,  the growth rate fell to negative 15.4 percent due to the restrictions imposed by the COVID crisis. Even in the first quarter of 2020/21, quarterly GDP has declined by 4.6 percent. This shows that it will take further for the economy to be back on the normal track.

On a quarterly basis also, accommodation sector was hardest hit by the COVID pandemic. in Q4 of 2019/20, output of this sector declined by 79.8 percent compared to Q4 of 2108/19. In the Q1 of 2020/21 also, such output has contracted by 71 percent.

This shows that the hotel and related sectors are still running at very low capacity and there are lot challenges for the revival of this sector.

 

Siddha Raj Bhatta

Current Macroeconomic Situation of Nepal Feb 2021

Current Macroeconomic and Financial Situation of Nepal

(Based on Seven Month’s Data Ending Mid-Feb, 2020/21)

Consumer Price Inflation

• The y-o-y consumer price inflation stood at 2.70 percent in the seven month of 2020/21 compared to 6.87 percent a year ago.
• Food and beverage inflation stood at 3.02 percent whereas non-food and service inflation stood at 2.44 percent in the review month.

External Sector

• In seven months of 2020/21, merchandise exports increased 7.6 percent to Rs.69.92 billion compared to an increase of 22.4 percent
• in the same period of the previous year.
• Destination-wise, exports to India and other countries increased 10.0 percent and 4.9 percent respectively whereas exports to China decreased 47.7 percent.
• In seven months of 2020/21, merchandise imports increased 0.01 percent to Rs.803.64 billion against a decrease of 3.6 percent a year ago.
• Destination-wise, imports from India, increased 7.1 percent whereas imports from China and other countries decreased 12.4 percent, and 10.8 percent respectively.
• Total trade deficit narrowed down 0.7 percent to Rs.733.73 billion in seven months of 2020/21. Such deficit had decreased 5.3 percent in the same period of the previous year.
• Remittance inflows increased 10.9 percent to Rs.567.70 billion in the review period against a decrease of 0.7 percent in the same period of the previous year. In US Dollar terms, remittance inflows increased 6.7 percent to 4.81 billion in the review period against a decrease of 0.5 percent in the same period of previous year.
• Number of Nepali workers taking approval for foreign employment decreased 75.9 percent in the review period. It had increased 21.7 percent in the same period of the previous year.
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• The current account remained at a deficit of Rs.101.90 billion in the review period compared to a deficit of Rs.106.0 billion in the same period of previous year.
• Net foreign direct investment (FDI) decreased 37.3 percent to Rs.9.02 billion. In the same period of previous year, net FDI amounted to Rs.14.38 billion respectively.
• Balance of Payments (BOP) registered a surplus of Rs.97.36 billion in the review period as compared to a surplus of Rs.21.61 billion in the same period of previous year.
• Gross foreign exchange reserves increased 4.3 percent to Rs.1462.03 billion in mid-February 2021 from Rs.1401.84 billion in mid-July 2020.
• In the US Dollar terms, the gross foreign exchange reserves increased 8.0 percent to 12.57 billion in mid-February 2021 from 11.65 billion in mid-July 2020.
• Based on the imports of seven months of 2020/21, the foreign exchange reserves of the banking sector is sufficient to cover the prospective merchandise imports of 13.1 months, and merchandise and services imports of 11.9 months.

 Fiscal Situation

• In the review period, total expenditure of the federal government according to Financial Comptroller General Office (FCGO), Ministry of Finance, stood at Rs.499.68 billion. The recurrent expenditure, capital expenditure and financing expenditure stood at Rs.406.73 billion, Rs. 62.84 billion and Rs. 30.11 billion respectively in the review period.
• In the review period, revenue mobilization (including the amount to be transferred to provincial and local governments) stood at Rs.498.52billion. The tax revenue and non-tax revenue amounted Rs.458.10 billion and Rs.40.42 billion in the review period.
• In the review period, domestic debt mobilization of federal government amounted Rs.90.5 billion, including Rs.20.5 billion through treasury bills and Rs.70 billion through development bonds.

Monetary Situation

• Broad money (M2) expanded 10.3 percent in the review period compared to the growth of 5.6 percent in the corresponding period of the previous year. On y-o-y basis, M2 expanded 23.3 percent in mid-February 2021.
• Domestic credit increased 10.5 percent in the review period compared to a growth of 3.1 percent in the corresponding period of the previous year. On y-o-y basis, domestic credit increased 21.8 percent in mid-February 2021.
• Deposits at Banks and Financial Institutions (BFIs) increased 9.8 percent in the review period compared to a growth of 6.4 percent in the corresponding period of the previous year. On y-o-y basis, deposits at BFIs expanded 22.4 percent in mid-February 2021.
• Private sector credit from BFIs increased 14.1 percent in the review period compared to a growth of 8.9 percent in the corresponding period of previous year. On y-o-y basis, credit to the private sector from BFIs increased 17.3 percent in mid-February 2021.
• The outstanding amount of refinance provided by NRB is Rs.82.29 billion in mid-February 2021.
• As of mid-February 2021, the outstanding concessional loan is Rs.112.03 billion extended to 68,206 borrowers.
• The weighted average 91-day treasury bills rate remained at 1.13 percent in mid-February 2021, which was 3.91 percent in the corresponding month a year ago. The weighted average inter-bank transaction rate among commercial banks, which was 4.59 percent a year ago, decreased to 0.58 percent in mid-February 2021. The average inter-bank rate of BFIs which is considered as operating target of monetary policy, stood 0.59 percent in mid-February 2021.
• The average base rate of commercial banks decreased to 6.97percent in mid-February 2021 from 9.45 percent a year ago.
• Weighted average deposit rate and lending rate of commercial banks stood at 4.86 percent and 8.89 percent respectively in mid-February 2021. Such rates were 6.78 percent and 11.94 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 213. Out of which, the license of 161 BFIs was revoked thereby forming 52 BFIs.
• Of the total 753 local levels, commercial banks extended their branches at 749 levels as of mid-February 2021.
• 52. The total number of BFIs licensed by NRB decreased to 143 in mid-February 2021 (Table 4). As of mid-February 2021, 27 commercial banks, 19 development banks, 20 finance companies, 76 microfinance financial institutions and 1 infrastructure development bank are in operation. The number of BFIs branches reached 10,366 in mid-February 2021 from 9765 in mid-July 2020.

Capital Market

• NEPSE index stood 2526.9 in mid-Feb2021 compared to 1346 in mid-Feb 2020. Such index was 1362.4 in mid-July 2020.
• Stock market capitalization in mid-Feb2021 stood Rs. 3406.17 billion compared to Rs. 1792.76 billion in mid-Jul2020.
• Number of companies listed at NEPSE stood 216, out of which 145 are Bank and Financial Institutions(BFIs) and insurance companies, 37 hydropower companies, 19 manufacturing and processing industries, 4 hotels, 4 trading companies and 7 others. The number of companies listed at NEPSE was 212 in mid-July2020.
• Share of BFIs and insurance companies in stock market capitalization is 72.1 percent. Such share for hydropower companies is 6.2 percent, manufacturing and processing industries 4.1 percent, hotels 0.8 percent, trading companies 0.5 percent and the share of other sector companies is 16.2 percent.

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CBS Revised the Growth Rate of Nepal

CBS Nepal has revised the growth rate of Nepal for 2019/20 on March 4, 2021. According to the revised estimates, the economy contracted by 1.88 percent at producer's price (by 1.99 percent at basic prices) in 2019/20 which is about 4 percentage points lower than the estimates released in April 2020.  

In the previous year, economic growth rate stood at 6.66 percent. The contraction of the economy shows that COVID-19 has severe impact on economic activities in the country. 

Accommodation and food service activities, transport, trade and manufacturing experienced the worst impact of the crisis. In 2019/20, output of accommodation and food service activities contracted by 25.7 percent followed by transport and storage (13.4 percent), and trade (10.7 percent).  

On a quarterly basis, GDP contracted by 15.4 percent in the fourth quarter of 2019/20. This is due to the restrictive measures adopted by the government of Nepal to contain the spread of corona virus. Even in the first quarter of 2020/21, the economic activities have not returned to normal. Quarterly GDP in the first quarter contracted by 4.5 percent. 

Siddha Raj Bhatta