Macroeconomic Overview (3 months data of FY2074/75)

NEPSE and its contribution in GDP

The NEPSE index as at Mid-October 2017 closed at 1,559.18 points compared to 1,803.74 points in the same period last year. The major reasons behind this downfall is due to huge supply of shares as a result of listing of bonus and rights share following the capital increment requirement for BFI’s and Insurance Companies, and also due to higher interest rates being offered by BFI’s in FD and higher borrowing rates.

With the downfall in NEPSE, the market capitalization of NEPSE has also declined to NPR 1,809.81 billion in Mid-October 2017 compared to 1,998.62 billion in 2016.

* GDP of 2015, 2016 and 2017 at Producer’s Prices

The ratio of market capitalization of NEPSE to GDP as at Mid-October 2017 has also dropped down to 69.6% compared to 88.9% last year during the same review period.

Interest Rates

The interbank rate of commercial banks as at October 2017 stood at 1.13% which is a slight increment compared to previous two months of this fiscal year suggesting tight liquidity situation if the BFI’s face difficulty in expanding their deposit base in the coming months ahead.

The recent high of interbank rate among commercial banks was 4.13 percent in February 2017, this was when the BFI’s faced acute liquidity crunch due to aggressive lending and failure to maintain deposit growth. This had a serious negative impact on NEPSE, as the index witnessed the year low of 1,218.86 points to close at 1,278.98 points of 13^th February, 2017.

Base Rate

Considering base rate of the commercial banks as shown in above figure, it doesn’t look like the borrowers will be getting cheaper loans any time soon, as the base rate of the commercial banks stands at 10.08% during Mid-October 2017 mainly due to higher cost of funds of the BFI’s. In the last year, during the same review period, the base rate of commercial banks stood at 6.43%, which is lower than the current base rate by 56.77%.

Inflation Rate

The consumer price inflation in Nepal stands at 3.1% in Mid-October 2017. The inflation rate is much lower in the first three months of this fiscal year compared to previous two fiscal years, and the current market interest rate on deposits can easily beat this inflation rate, if we are to rely on this data.

Deposit Growth

The deposits of BFI’s as at October End, 2017 increased to NPR 2,464.53 billion by 3.77%, compared to NPR 2,375.11 billion in July End, 2017. The growth during the same period in last year was 3.75%.

Credit Growth

The credit disbursement of BFI’s as at October End, 2017 increased to NPR 2,078.90 billion by 4.67%, compared to NPR 1,986.23 billion in July End, 2017. The growth during the same period in last year was 5.74%.

However, if we compare the credit growth rate with deposit growth rate of BFI’s, the credit growth rate is comparatively higher than the deposit rate, which can be an alarming factor in the coming days ahead if the BFI’s fail to expand deposit base in line with the credit growth rate.

Liquidity

The NRB mopped up Rs. 115.40 billion through open market operations in the first three months of FY 2017/18 as some ease in liquidity was observed in the market lately. Of which, Rs. 40.65 billion was mopped up under deposit collection auction and Rs. 74.75 billion through reverse repo auction on a cumulative basis. In the corresponding period of the previous year, Rs. 90.25 billion liquidity was absorbed.

Total liquidity mopped up in the first three month of FY 2017/18:

Government Revenue and Expenditure

In comparison to first three months of FY 2016/17, the government expenditure has increased by 45.90% to Rs. 138.84 billion as a result of successful completion of local level election and also for the preparation of upcoming province level and state level election, helping to inject some liquidity into the system.

On the other hand, the government revenue witnessed the growth of 10.73% compared to corresponding period of the last fiscal year. The government revenue for the first three months in this fiscal year stood at NPR 139.65 billion.

Remittance

Our country has been witnessing a decline in remittance growth lately, which is an alarming factor as it is one of the major backbone to our economy. The remittance grew by 4.84% in FY 2016/17 compared to FY 2015/16. Likewise, the share of remittance in GDP has also dropped down to 26.80% in 2016/17, compared to 2015/16 when the share in GDP stood at 29.60%.

Looking at the first three months’ data of FY 2017/18, the worker’s remittance increased by 6.58% to $1,711.50 million compared to $1,605.90 million in 2016/17. The growth during the corresponding period last year was mere 0.73%.