Despite Lack of Economic Activity, Nepal’s Economy Shows Strong Performance
Nepal’s total foreign exchange reserves have reached an all-time high of NPR 3.74 trillion as of the end of the month of Baisakh in the current fiscal year. Remittances up to Baisakh in this fiscal year have totaled NPR 1.9169 trillion, marking an increase of 41.2 percent compared to the previous year. Due to economic slowdown, the growth rate of loans flowing from banks and financial institutions to the private sector has decelerated to 5.7 percent. Kathmandu, 26 Jestha — Although there has been no improvement in economic activity, all key economic indicators remain strong except for inflation and the private sector loan growth rate.
The rise in consumer prices has been modest, driven mainly by increased petroleum prices due to tensions in West Asia. The central bank notes that the loan growth rate to the private sector from banks and financial institutions has decreased because of the sluggish economy and declining overall market demand. Apart from this, key economic indicators such as foreign exchange reserves, remittances, current accounts, and imports are reported to be in robust condition, according to the Nepal Rastra Bank (NRB). The Reserve Bank also states that foreign exchange reserves exceeded NPR 3.7 trillion as of Baisakh in the current fiscal year, marking a record high.
Total foreign exchange reserves stood at NPR 2.6777 trillion at the end of Ashadh 2078 (mid-July 2021) and have risen by 38.3 percent to NPR 3.74 trillion by Baisakh 2079 (mid-May 2022). This increase has been driven by sustained improvement in remittance inflows during the fiscal year. The central bank explains that the slower than anticipated improvement in imports, attributable to the economic slowdown, has contributed to maintaining high foreign reserves. Based on imports in the first 10 months of fiscal year 2078/79, the foreign exchange reserves held by the banking sector are sufficient to cover 22.6 months of merchandise imports and 19.2 months of goods and services imports.
As of Baisakh 2079, the ratios of foreign exchange reserves to Gross Domestic Product (GDP), total imports, and broad money supply stand at 60.7 percent, 159.7 percent, and 43.3 percent, respectively. These are significantly higher than the ratios of 43.8 percent, 128.1 percent, and 34.1 percent recorded in Ashadh 2078. Furthermore, a record NPR 257 billion in remittances was received in the month of Baisakh alone. Despite a weakening Indian rupee relative to the US dollar, remittance inflows have increased, aided by improvements in export technology services from Nepal, according to NRB officials.
Remittances totaling NPR 1.9169 trillion have been received up to Baisakh in the current fiscal year, which is 41.2 percent higher than NPR 1.357 trillion in the same period last fiscal year. Additionally, net secondary income for the same period has reached NPR 2.0919 trillion, compared to NPR 1.4803 trillion in the previous year. The NRB reports a 1.6 percent decline in loan disbursements from banks and financial institutions up to Baisakh, attributing this to reduced overall demand caused by economic sluggishness affecting credit flows. Over the first 10 months of the current fiscal year, loans to the private sector increased by 5.7 percent, down from a 7.3 percent growth rate recorded in the previous fiscal year during the same period. Total loans extended by banks and financial institutions to the private sector reached NPR 312 billion as of Baisakh, compared to NPR 368 billion in the same period last year.
Meanwhile, annual point-to-point consumer inflation in Baisakh 2079 stands at 5.04 percent, rising from 2.77 percent in the same month last year. Food and beverage inflation for Baisakh is 4.63 percent, while non-food and service inflation is at 5.26 percent. The increase in inflation is mainly due to rising petroleum product prices and is not a result of increased economic activity or improved credit investment in the financial sector, a central bank official said.