MACROECONOMIC SITUATION OF NEPALESE ECONOMY BASED ON SEVEN MONTH’S DATA OF FY 2020/21
This macroeconomic report is prepared based on seven month’s data of FY 2020/21 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 at Mid-Feb 2021 inclined remarkably by 87.74% to close at 2526.9 points, compared to 1346.0 points in the same period last year. The market capitalization of NEPSE as well increased from NPR 1,717.49 billion in Mid-Feb 2020 to NPR 3,406.17 billion in Mid-Feb 2021.
On the other hand, the ratio of market capitalization of NEPSE to GDP as at Mid-Feb 2021 has increased to 86.40% compared to 44.50% 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.
Interbank Rate
The interbank rate of commercial banks which reached a high of 6.91% in Mid-June 2019 stands at 0.58% in Mid-Feb 2021 indicating liquidity ease in the banking system. The interbank rate during the same period a year ago stood at 4.59%.
Base Rate
The base rate of commercial banks stands at 6.97% in Mid-Feb 2021 compared to 9.45% a year ago. This has set the weighted average lending rate at 8.89%. On the other hand, the weighted average deposit rate stands at 4.86%. Such rates were 11.94% and 6.78% respectively in the corresponding month of the previous year.
C. INFLATION RATE
The consumer price inflation which was 6.87% a year ago significantly declined to 2.70% in Mid-Feb 2021. Food and beverage inflation stood at 3.02 % whereas non-food and service inflation stood at 2.44 %, in the review month. The price of fruit; ghee and oil; pulses and legumes; and tobacco products sub-groups increased by 18.84%, 18.14%, 10.41% and 10.41% respectively on year on year basis.
D. DEPOSIT AND LENDING GROWTH
Deposit Growth:
The deposits of BFI’s as at Mid-Feb 2021 increased by 9.20% to NPR 4,291.68 billion, compared to NPR 3,930.17 billion in Mid-July 2020. The increase during the same period last year was 6.25%. The share of demand, saving, and fixed deposits in total deposits stands at 8.2 percent, 33.9 percent and 48.9 percent respectively in mid-Feb 2021. Such shares were 8.5 percent, 31.6 percent and 49.9 percent respectively a year ago. The share of institutional deposits in total deposit of BFIs stands at 42.0 percent in mid-Feb 2021. Such share was 44.9 percent in mid-Feb 2020.
Credit Growth:
The credit disbursement of BFI’s as at Mid-Feb 2021 increased to NPR. 3,738.59 billion by 14.47%, compared to NPR 3,266.01 billion in Mid-July 2020. The growth during the same period last year was 9.28%. Out of the total outstanding credit of the BFIs, 66.4% is against the collateral of land and building and 12.3% against the collateral of current assets (such as agricultural and non-agricultural products). Such ratios were 65.1 percent and 13.4 percent respectively a year ago.
In the review period, term loan extended by BFIs increased 13.2 percent, overdraft increased 14.8 percent, demand and working capital loan increased 16.8 percent, real estate loan (including residential personal home loan) increased 5.3 percent, margin nature loan increased 53.5 percent and trust receipt (import) loan increased 18.2 percent while that of hire purchase loan decreased 5.9 percent.
E. LIQUIDITY MANAGEMENT
In the review period, NRB mopped up Rs. 283.29 billion liquidity through reverse repo auction (89.54 billion) and deposit collection auction (193.75 billion). Rs.58 billion liquidity was mopped up in the corresponding period of the previous year. Rs.160.28 billion liquidity was injected including Rs.90.73 billion through repo and Rs.69.55 billion through standing liquidity facility (SLF) in the corresponding period of the previous year.
Moreover, NRB injected liquidity of Rs.264.49 billion through the net purchase of USD 2.24 billion from foreign exchange market. Liquidity of Rs.229.46 billion was injected through the net purchase of USD 2.01 billion in the corresponding period of the previous year.
F. FISCAL SITUATION
Fiscal Deficit/Surplus
In the seven months of 2020/21, total revenue collected by the government till mid-Feb 2021 is Rs.498.52 billion which is 1.27% higher compared with the corresponding month of the previous fiscal year. The total expenditure of the government till mid-Feb 2021 is Rs.499.68 billion which is 2.59% higher than that of the expenditure on the corresponding month of previous fiscal year.
G. BALANCE OF PAYMENT POSITION
The country’s BOP position is at surplus in the seven month of FY 2020/21 by NPR 97.36 billion compared to a surplus of NPR 21.61 billion during the same period last year. On the other hand, the current account is at deficit of NPR 101.89 billion compared to a deficit of NPR 106.00 billion in the same period of last year. In the review period, capital transfer and foreign direct investment (FDI) in Nepal amounted to Rs.7.83 billion and Rs.9.02 billion respectively. In the same period of the previous year, capital transfer and FDI amounted to Rs. 8.30 billion and Rs.14.38 billion respectively.
WORKERS’ REMITTANCE
The workers’ remittance growth rate is subject to different 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 workers’ remittance increased by 6.74% to NPR 4,807.00 million during the seven months in FY 2020/21 compared to a decrease of 0.45% during the same period in FY 2019/20.
Remittance in NPR terms
On the other hand, in NPR terms, the workers’ remittance increased by 10.89% to NPR 567.30 billion during the seven months in FY 2020/21 compared to a fall of 0.7% during the same period in FY 2019/20.
Net transfer increased 8.8 percent to Rs.629.83 billion in the review period. Such transfer had decreased 1.5 percent in the same period of the previous year. As per the data of Department of Foreign Employment, Number of Nepali workers (institutional and individual-new and legalized) taking approval for foreign employment decreased 75.9 percent in the review period. It had increased 21.7 percent in the same period of the previous year. The number of Nepali workers (Renew entry) taking approval for foreign employment decreased 67.4 percent in the review period. It had decreased 0.6 percent in the same period of the previous year.