Nepal’s economic landscape: Inflation eases, remittance surges, and trade dynamics shift

KATHMANDU: In a noteworthy economic shift, Nepal experiences a substantial easing of inflation, with year-on-year consumer prices moderating to 5.38% in mid-November 2023 from 8.08% a year ago, according to Nepal Rastra Bank data. The Food and Beverage category sees a 6.01% rise, while the Non-Food and Service category records 4.89% inflation.

The trade scenario unveils a recalibration as merchandise exports decline by 7.7%, totaling Rs.50.57 billion. Exports to India contract by 14.5%, while those to China and other countries surge by 307.9% and 4.7%, respectively. Import dynamics show a 3.8% decrease to Rs.512.50 billion, impacting the total trade deficit, which decreases by 3.3% to Rs.461.94 billion.

Remittance inflows take center stage, surging by 26.4% to Rs.477.96 billion, contributing to a current account surplus of Rs.96.38 billion. The Balance of Payments registers a surplus of Rs.147.11 billion. Gross foreign exchange reserves rise by 10.2% to Rs.1696.78 billion, covering prospective merchandise imports for 13.6 months.

Monetary sector indicators reveal growth, with broad money (M2) expanding by 3.7%, net foreign assets (NFA) increasing by Rs.147.11 billion, and domestic credit rising by 2.2%. The government’s total expenditure during the first four months of 2023/24 increases by 1.3% to Rs.355.63 billion.

Nepal’s banking landscape remains diverse, with 20 commercial banks, 17 development banks, 17 finance companies, 57 microfinance institutions, and 1 infrastructure development bank operating through a network of 11,555 branches.

As interest rates show a decline, the weighted average 91-days treasury bills rate stands at 4.39%, and the average base rates of commercial banks, development banks, and finance companies are 9.74%, 12.00%, and 13.33%, respectively.

This economic panorama underscores the resilience of Nepal’s economy, balancing challenges and opportunities. As the government implements fiscal measures and the banking sector manages liquidity, the outlook holds promise amid a shifting economic landscape.

Inflation Dynamics:
Nepal witnessed a moderation in year-on-year consumer price inflation, standing at 5.38% in mid-November 2023, a notable decline from the 8.08% recorded a year ago, according to data from Nepal Rastra Bank. The Food and Beverage category saw inflation at 6.01%, while the Non-Food and Service category stood at 4.89%.

Within the Food and Beverage category, significant fluctuations were noted, with spices surging by 36.46% and ghee & oil witnessing a decrease of 14.23%. In the Non-Food and Services category, recreation & culture led with 12.84% inflation.

Regional Disparities:
Geographically, inflation varied across regions. In mid-November 2023, year-on-year consumer price inflation in the Kathmandu Valley, Terai, Hill, and Mountain regions stood at 6.00%, 4.42%, 6.07%, and 8.79%, respectively. Notably, inflation rates in these regions showed divergence compared to a year ago.

Trade Scenario:
Merchandise exports decreased by 7.7%, totaling Rs.50.57 billion, with exports to India declining by 14.5%. However, exports to China and other countries increased significantly by 307.9% and 4.7%, respectively. Imports decreased by 3.8% to Rs.512.50 billion, with a 34.4% increase in imports from China. The total trade deficit decreased by 3.3% to Rs.461.94 billion, and the export-import ratio decreased to 9.9%.

Remittance Inflows:
Remittance inflows surged by 26.4% to Rs.477.96 billion, contributing to a current account surplus of Rs.96.38 billion. The Balance of Payments registered a surplus of Rs.147.11 billion. Gross foreign exchange reserves increased by 10.2% to Rs.1696.78 billion, highlighting the resilience of Nepal’s remittance-dependent economy.

Foreign Exchange and Reserves:
The Nepalese currency depreciated by 1.18% against the US dollar. Gross foreign exchange reserves increased by 10.2% to Rs.1696.78 billion, covering prospective merchandise imports for 13.6 months. The share of Indian currency in total reserves stood at 21.8%.

Monetary Sector and Government Expenditure:
In the monetary sector, broad money (M2) increased by 3.7%, and net foreign assets (NFA) increased by Rs.147.11 billion. Domestic credit increased by 2.2%, and private sector credit increased by Rs.99.40 billion. The government’s total expenditure during the first four months of 2023/24 increased by 1.3% to Rs.355.63 billion, while total revenue mobilization reached Rs.276.64 billion, growing by 3.2%.

Banking Landscape:
As of mid-November 2023, Nepal had 20 commercial banks, 17 development banks, 17 finance companies, 57 microfinance institutions, and 1 infrastructure development bank, operating through a total of 11,555 branches.

Interest Rates and Liquidity:
Interest rates showed a decline, with the weighted average 91-days treasury bills rate at 4.39%, and the average base rates of commercial banks, development banks, and finance companies standing at 9.74%, 12.00%, and 13.33%, respectively. Liquidity dynamics were observed, with the Nepal Rastra Bank injecting liquidity through various instruments.