This macroeconomic report is prepared based on tenth month’s data of FY 2019/20 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 on Mid-May 2020 declined by 8.66% to close at 1201.57 points, compared to 1315.50 points in the same period last year. The market capitalization of NEPSE as well increased from NPR 1632.75 billion in Mid-May 2019 to NPR 1536.42 billion in Mid-May 2020.
On the other hand, the ratio of market capitalization of NEPSE to GDP as on Mid-May 2020 has declined to 40.79% compared 47.21% in the last year during the same review period.
B. INTEREST RATES
To evaluate the current scenario of interest rate in the economy, interbank rate and base rate of commercial banks are taken into consideration.
The interbank rate of commercial banks which reached a year-high of 6.91% in Mid-June 2019 stands at 4.06% in Mid-May 2020 indicating some liquidity ease in the banking system. The interbank rate during the same period a year ago stood at 6.12%.
The base rate of commercial banks stands at 8.96% in Mid-May 2020 compared to 9.59% a year ago, which means borrowing money from bank has become slightly cheaper compared to a year ago. This has set the weighted average lending rate at 10.99%. On the other hand, the weighted average deposit rate stands at 6.44%. Such rates were 12.23% and 6.67% respectively in the corresponding month of the previous year.
C. INFLATION RATE
The consumer price inflation which was 5.30% a year ago significantly inclined to 5.83% in Mid-May 2020, mainly due to rise in Food & Beverage inflation as well as Non-food & Service inflation which stood at 8.66% and 3.67% respectively in the review month.
Within the food and beverage group, the price of vegetables, spices, pulses and legumes and meat and fish sub-groups rose significantly in the review month. Within the non-food and service group, the price of education, health, and clothes and footwear subgroups rose moderately in the review month.
D. DEPOSIT AND LENDING GROWTH
Deposit Growth: The deposits of BFI’s as at Mid-May 2020 increased by 10.14% to NPR 3,693.93 billion, compared to NPR 3,353.93 billion in Mid-July 2019. The growth during the same period last year was 11.36%. The share of demand, saving, and fixed deposits in total deposits stands at 8.6 percent, 32.6 percent and 48.6 percent respectively in mid-May 2020. Such shares were 8.7 percent, 32.8 percent and 47.8 percent respectively a year ago. The share of institutional deposits in total deposits of BFIs stands at 44.3 percent in mid-May 2020. Such share was 45.7 percent in mid-May 2019.
Credit Growth: The credit disbursement of BFI’s as at Mid-May 2020 increased to NPR 3,238.02 billion by 11.20%, compared to NPR 2,911.90 billion in Mid-July 2019. The growth during the same period last year was 17.66%. Of the total outstanding credit of the BFIs, 65.4 percent is against the collateral of land and building and 13.2 percent against the collateral of current assets (agricultural and non-agricultural products). Such ratios were 64.2 percent and 13.8 percent respectively a year ago.
In the review period, loan of BFIs to agriculture sector increased 13.9 percent, industrial production sector increased 12.1 percent, construction sector increased 12 percent, transportation, communication and public sector increased 15.1 percent and service industry sector increased 18.5 percent in the review period.
If we compare the credit growth rate of 11.20% with the deposit growth rate of 10.14%, then the credit crunch is likely to reoccur again if the deposit growth rate couldn’t matchup with the credit demand.
E. LIQUIDITY MANAGEMENT
In the review period, NRB mopped up Rs.58 billion liquidities through open market operations. Liquidity of Rs.100.35 billion was mopped up in the corresponding period of the previous year.
In the review period, Rs.215.01 billion liquidities was injected including Rs.115.33 billion through repo and Rs.99.68 billion through standing liquidity facility (SLF). Liquidity of Rs.116.80 billion was injected including Rs.102.15 billion through repo and Rs.14.65 billion through SLF in the corresponding period of the previous year. Moreover, NRB injected liquidity of Rs.347.28 billion through the net purchase of USD 3.01 billion from foreign exchange market. Liquidity of Rs.292.08 billion was injected through the net purchase of USD 2.57 billion in the corresponding period of the previous year.
F. FISCAL SITUATION
During ten months of 2019/20, fiscal position of the Government, based on banking transactions, remained at a deficit of Rs.129.18 billion compared to a deficit of Rs.0.44 billion in the corresponding period of the previous year.
Government Revenue and Expenditure
In comparison to tenth months of FY 2018/19, the expenditure of federal government increased by 7.07% to reach at NPR 725.61 billion. On the other hand, the revenue of the government witnessed a decline of 1.44% compared to corresponding period of the last fiscal year. The government revenue in the tenth month of this fiscal year stood at NPR 639.314 billion compared to NPR 648.668 billion in the tenth month of the last fiscal year.
G. BALANCE OF PAYMENT POSITION
The country’s BOP position is at surplus in the tenth month of FY 2019/20 by NPR 120.89 billion compared to a deficit of NPR 68.204 billion during the same period last year. On the other hand, the current account is at deficit by NPR 105.736 billion compared to a deficit of NPR 221.765 billion in the same period of last year.
In the review period, capital transfer and foreign direct investment (FDI) in Nepal amounted to Rs.12.49 billion and Rs.17.42 billion respectively. In the same period of the previous year, capital transfer and FDI had amounted to Rs.13.48 billion and Rs.9.47 billion respectively.
The workers’ remittance growth rate is subject to differ in terms of US Dollar and Nepalese Currency based on exchange rate of NPR with US Dollar. Hence, the workers’ remittance growth in terms of US Dollar and NPR has been presented below:
Remittance in Dollar Terms
In US Dollar terms, the tenth month’s data of FY 2019/20 shows that worker’s remittance growth has witnessed a decline of 7.41% to reach at $5928.19 million compared to 9.25% growth in 2018/19.
Remittance in NPR terms
On the other hand, in NPR terms, the workers’ remittance declined by 6.13% to NPR 680.84 billion during the tenth months in FY 2019/20 compared to a growth of 19.55% during the same period in FY 2018/19.
Net transfer income decreased 4.4 percent to Rs.713.11 billion in the review period. Such income had increased 20.9 percent in the same period of the previous year. As per the data of Department of Foreign Employment, the number of Nepalese workers (institutional and individual-new and legalized) taking approval for foreign employment increased 10.2 percent in the review period. It had decreased 37.5 percent in the same period of the previous year. The number of Nepali workers (Renew entry) taking approval for foreign employment decreased 15 percent in the review period. It had increased 4.6 percent in the same period of the previous year.