This macroeconomic report is prepared based on annual data of FY 2074/75 published by NRB. The key macro-economic indicators and variables are highlighted in the table below, and explained in further section:

A. NEPSE and Ratio of Market Cap to GDP

The NEPSE index as at Mid-July 2018 closed at 1212.36 points, a 23.4% decline from the same period last year when the figure stood at 1,582.67 points. The market capitalization of NEPSE as well declined by 22.71%, from NPR 1,856.83 billion in Mid-July 2017 to NPR 1,435.14 billion in Mid-July 2018.

Of the total market capitalization, the share of banks, financial institutions and insurance companies stood at 80.5%, hydropower: 4.7%, manufacturing and processing companies: 2.8%, hotels: 1.7%, trading: 0.1%, and others: 10.2% respectively. Also, the total number of companies listed in NEPSE has decreased to 196 in mid-July 2018 from 208 a year ago. Of the listed companies, 147 are BFIs (including insurance companies), 18 manufacturing and processing industries, 19 hydropower companies, 4 each hotels and trading institutions and 4 other sectors.

During the twelfth month of 2017/18, the total turnover of the securities decreased 46.2 percent to NPR 6.63 billion compared to the corresponding period of the previous year. The turnover of the securities had decreased 61 percent to NPR 12.33 billion in the twelfth month of 2016/17.

The ratio of market capitalization of NEPSE to GDP as at Mid-July 2018 has dropped down to 47.72% compared to 70.27% a year ago.


To evaluate current scenario of interest rate in the economy, following rates are taken into consideration:

  1. Interbank Rate
  2. Base Rate of Commercial Banks

Interbank Rate

As shown in the chart below, the interbank rate of commercial banks has declined to 2.96% in Mid-July 2018 compared to 4.18% in the previous month. In previous seven months, interbank rate had stood above 4% level, which was on the higher end. This sudden decline in the interbank rate indicates liquidity situation is improving in the banking system.

Base Rate

Even though the interbank rate has declined, the base rate is still in increasing trend, which is a major setback for borrowers. The base rate has reached one-year-high of 10.47% as at Mid-July 2018.  It was 10.41% during the previous month. And last year during the same review period, the base rate of commercial banks stood at 9.89%.


As reported by NRB, the consumer price inflation in Mid-July 2018 stood at 4.6%. The figure stood at 2.7% during the same period a year ago, which indicates a recent built up in inflationary pressure. However, the annual average consumer price inflation moderated to 4.2 percent in 2017/18 from 4.5 percent in the previous year. This rate of inflation is the lowest since 2004/05. Improvement in supply-chain management and lower rate of inflation in India contributed to the lower level of inflation in the review year.

Real Interest Rate

Considering nominal interest rate as weighted average deposit rate (commercial banks) of 6.49% (as at Mid-July 2018) and inflation rate of 4.6%, the real interest rate via Fisher equation is 1.89% only.


Deposit Growth: The deposits of BFI’s as at Mid-July 2018 increased to NPR 2,836.65 billion (i.e. by 19.43%) as compared to NPR 2,375.11 billion in Mid-July 2017. The growth during the same period in the previous year was 12.61%. Of the total deposits at the BFIs, the share of saving deposits decreased from 35.4 percent a year ago to 34.5 percent in mid-July 2018. The share of demand deposits increased to 9.3 percent from 8.7 percent, and fixed deposits increased to 44.8 percent from 43.2 percent a year ago.

Credit Growth: The credit disbursement of BFI’s as at Mid-July 2018 increased to NPR 2,422.78 billion (i.e. by 21.98%) as compared to NPR 1,986.23 billion in Mid-July 2017. The growth during the same period during last year was 18.10%.

The credit growth continues to outstrip deposit growth. However, deposit growth has gathered steam following the rise in government expenditure and a slight improvement in the growth of remittances. As a result, market interest rates have stabilized to some extent.


In FY 2017/18, NRB has mopped up NPR 195 billion through open market operation, out of which NPR 55.9 billion was mopped up under deposit collection auction, NPR 45.95 billion through 14 days’ deposit collection auction under interest rate corridor, NPR 84.75 billion through reverse repo and NPR 8.4 billion through outright sale auction on a cumulative basis. In the corresponding period of previous year, NPR 124.45 billion liquidity was absorbed.

During FY 2017/18, NRB injected NPR 422.34 billion through purchase of US dollars, whereas NPR 107.34 billion was injected through repo auction and outright purchase in the wake of liquidity crunch in the banking system. The figures during the same period in the previous year were NPR 435.86 Billion and NPR 61 Billion respectively. In addition, BFI’s had also utilized Standing Liquidity Facility (SLF) of NPR 38.33 billion in 2017/18 to further manage the liquidity in the banking system. The BFI’s had utilized such facility of NPR 62.39 billion last year.


Budget Deficit/ Surplus

In the review year, the Government of Nepal (GoN) was at deficit of NPR 268.85 billion in its budget compared to a deficit of NPR 188.69 billion in the previous year. The ratio of budget deficit-to-GDP stood at 8.5 percent in the review year.

Government Revenue and Expenditure

In FY 2017/18, the government expenditure has increased by 26.15% to NPR 1029.02 billion. Such growth in the previous year was 40.23%. In the review year, recurrent expenditure increased 32.4 percent to NPR 680.31 billion compared to a growth of 40.9 percent in the preceding year. Such expenditure stood at 84.7 percent of the budget estimate. In the review year, capital expenditure increased 20.4 percent to NPR 239.91 billion compared to a growth of 72.2 percent in the previous year. The capital expenditure in the review year accounted for 71.6 percent of the budget estimate of NPR 335.18 billion. In the review year, financial expenditure increased 5.8 percent to NPR 108.80 billion. The financial spending accounted for 77.6 percent of the budget estimate.

On the other hand, the government revenue grew by 19.20%, as compared to 26.38% in the corresponding period of last fiscal year. The government revenue in the review year stood at NPR 726.08 billion compared to NPR 609.12 billion in the previous fiscal year. This revenue collection is 99.5% of the budget target of NPR 730.06 billion. Among the components of revenue, VAT accounted for 28.2 percent followed by income tax (21.8 percent), customs (18.8 percent), and excise duties (14.0 percent). In the previous year, their shares were 26.3 percent, 24.3 percent, 18.6 percent and 13.9 percent respectively.




The current account deficit showed a marked expansion to NPR 245.22 billion in the review year compared to a narrow deficit of NPR 10.13 billion in the previous year. The surge in current account deficits was on account of the elevated level of import of petroleum products, transport equipment and parts, and industrial goods. The country’s overall BOP recorded a surplus of NPR 960.2 million in FY 2017/18, compared to a surplus of NPR 82.11 billion in the previous year.

Capital transfer, which had amounted to NPR 13.36 billion in the previous year, increased to NPR 17.72 billion in the review year. In the review period, the flow of foreign direct investment (FDI) amounted to NPR 17.51 billion compared to NPR 13.50 billion in the corresponding period of the previous year.


The workers’ remittance increased by 8.57% to NPR 755.06 billion during the review period compared to a growth of 4.57% in FY 2016/17. However, the ratio of worker’s remittance-to-GDP came down to 25.1% in the review year from 26.3% of the previous year.

The number of Nepalese workers seeking foreign employment, based on labor approval, further fell 10.1 percent in the review year compared to a decline of 4.7 percent in the previous year. In the review year, the number of workers outbound to Malaysia, UAE, Kuwait increased while those to Saudi Arabia and Qatar declined.