(Based on Seven months data ending Mid-February, 2023/24)

Based on the information provided by the report published by Nepal Rastra Bank's Economic Research Department in Baluwatar, Kathmandu, a comprehensive analysis of Nepal's macroeconomic and financial situation can be drawn:

Consumer Price Inflation (CPI):

Consumer Price Inflation (CPI) reflects overall inflation, encompassing food, beverages, and non-food items and services. In mid-February 2024, year-on-year (y-o-y) CPI moderated to 5.01 percent, down from 7.88 percent a year prior. Notably, food and beverage inflation stood at 6.51 percent, while non-food and service inflation reached 3.85 percent.

Food and Beverage Category:

Spices saw a significant y-o-y price increase of 32.11 percent.

Pulses & legumes followed with an 11.15 percent increase.

Milk products & eggs rose by 10.78 percent.

Cereal grains & their products increased by 9.06 percent.

Vegetables experienced a 7.58 percent increase.

However, the y-o-y price index of the ghee & oil sub-category decreased by 12.33 percent.

Non-Food and Services Category:

Recreation & culture saw a substantial increase of 12.61 percent.

Miscellaneous goods & services rose by 9.15 percent.

Education expenses increased by 7.31 percent.

Transportation costs, however, experienced a decrease of 1.41 percent.

Regional Inflation:

Regional disparities in inflation rates were observed:

Kathmandu Valley: Recorded a consumer price inflation of 4.96 percent.

Terai: Saw inflation at 4.71 percent.

Hill: Experienced inflation of 5.58 percent.

Mountain: Witnessed inflation at 5.44 percent. All these rates marked an increase compared to the same period last year.

Wholesale Price Inflation (WPI):

Y-o-y wholesale price inflation stood at 2.82 percent in mid-February 2024, compared to 9.67 percent a year ago. WPI index increases were observed in consumption goods (7.05 percent), intermediate goods (0.72 percent), and capital goods (1.79 percent). Hence, WPI index of construction material decreased by 5.32 percent in the review month.

Salary and Wage Rate Index (SWRI)

Year-on-Year SWRI: Registered an increase of 5.56 percent, a substantial decrease from 10.27 percent recorded in the previous year.

Monthly Changes: In the review month, the salary index observed a marginal increase of 1.05 percent, whereas the wage rate index witnessed a more significant rise of 6.92 percent.

External Sector

Merchandise Trade:

It includes the exports of zinc sheet, particle board, juice, readymade garments, ginger among others increased whereas exports of palm oil, soybean oil, cardamom, tea, woolen carpet, among other decreased.

Exports decreased by 7.1 percent, with notable decreases in exports to India and other countries but an increase in exports to China.

Imports decreased by 2.3 percent, with decreases in imports from India and other countries but an increase in imports from China.

Trade Deficit and External Sector Statistics:

Total trade deficit decreased by 1.8 percent to Rs. 811.11 billion during the review period. The export-import ratio decreased to 9.7 percent.?Merchandise imports from India against payment in convertible foreign currency amounted to Rs. 88.18 billion during the review period.

Composition of Foreign Trade:

Intermediate and final consumption goods accounted for 56.4 percent and 43.4 percent of total exports respectively, while the ratio of capital goods remained negligible at 0.2 percent in the review period. These ratios were slightly different in the same period of the previous year as per the Board Economic Categories (BEC). On the imports side, the share of intermediate goods was 49.2 percent, capital goods 8.9 percent, and final consumption goods 41.8 percent in the review period. Again, there were slight differences compared to the previous year.

Export-Import Price Index:

The y-o-y unit value export price index increased by 5.6 percent, while the import price index decreased by 4 percent. Consequently, the terms of trade (ToT) index increased by 9.9 percent in the review period.

Services:

Net services income remained at a deficit of Rs. 37.26 billion in the review period, compared to a deficit of Rs. 44.36 billion in the same period of the previous year.?Travel income under the service account increased by 44.5 percent to Rs. 45.40 billion in the review period, while travel payments increased by 49.9 percent to Rs. 104.75 billion, including a significant portion for education.

Remittances:

Remittance inflows increased by 21.6 percent to Rs. 839 billion in the review period, with a similar increase in US Dollar terms.?The number of Nepali workers seeking first-time approval for foreign employment and renewing entry approval decreased compared to the previous year.Net transfer increased by 20.0 percent to Rs. 910.74 billion in the review period, compared to a higher increase in the same period of the previous year.

Current Account and Balance of Payments

The current account remained at a surplus of Rs.161.69 billion in the review period against a deficit of Rs.40.16 billion in the same period of the previous year. In the US Dollar terms, the current account registered a surplus of 1.22 billion in the review period against a deficit of 314.6 million in the same period last year.

In the review period, capital transfer decreased 29.0 percent to Rs.3.80 billion and net foreign direct investment (FDI) remained a positive of Rs.5.18 billion. In the same period of the previous year, capital transfer amounted to Rs.5.35 billion and net FDI amounted to Rs.1.04 billion.

Balance of Payments (BOP) remained at a surplus of Rs.297.72 billion in the review period against a surplus of Rs.128.55 billion in the same period of the previous year. In the US Dollar terms, the BOP remained at a surplus of 2.24 billion in the review period against a surplus of 975.7 million in the same period of the previous year.

Foreign Exchange Reserves:

Gross foreign exchange reserves in Nepal increased by 19.9 percent to Rs. 1844.94 billion in mid-February 2024 from Rs. 1539.36 billion in mid-July 2023.

In US dollar terms, the gross foreign exchange reserves rose by 18.6 percent to $13.89 billion in mid-February 2024 from $11.71 billion in mid-July 2023.

Within the total foreign exchange reserves, reserves held by the Nepal Rastra Bank (NRB) increased by 20.7 percent to Rs. 1623.92 billion in mid-February 2024 from Rs. 1345.78 billion in mid-July 2023.

Reserves held by banks and financial institutions (excluding NRB) increased by 14.2 percent to Rs. 221.02 billion in mid-February 2024 from Rs. 193.59 billion in mid-July 2023.

The share of Indian currency in total reserves stood at 22.6 percent in mid-February 2024.

Foreign Exchange Adequacy Indicators:

Based on the imports of seven months of 2023/24, the foreign exchange reserves of the banking sector are sufficient to cover prospective merchandise imports for 14.7 months and merchandise and services imports for 12.3 months.

The ratios of reserves-to-GDP, reserves-to-imports, and reserves-to-M2 stood at 34.3 percent, 102.4 percent, and 28.0 percent respectively in mid-February 2024. These ratios increased from 28.6 percent, 83.0 percent, and 25.0 percent respectively in mid-July 2023.

Price of Oil and Gold:

The price of oil (Crude Oil Brent) in the international market decreased by 1.8 percent to US dollar 83.88 per barrel in mid-February 2024 from US dollar 85.46 per barrel a year ago.?The price of gold increased by 8.4 percent to US dollar 2015.20 per ounce in mid-February 2024 from US dollar 1859.70 per ounce a year ago.

Exchange Rate:

Nepalese currency depreciated by 1.05 percent against the US dollar in mid-February 2024 compared to mid-July 2023. It had depreciated by 3.18 percent in the same period of the previous year.?The buying exchange rate per US dollar stood at Rs.132.56 in mid-February 2024 compared to Rs.131.17 in mid-July 2023.?These indicators provide insights into the stability and adequacy of Nepal's foreign exchange reserves, as well as fluctuations in oil prices, gold prices, and exchange rates.

Fiscal Situation:

Government Expenditure:

The total expenditure of the Nepal Government during the seven months of 2023/24 stood at Rs. 686.75 billion.

Compared to the growth of 13.0 percent in the last fiscal year, government expenditure increased by 2.9 percent in the review period.

Recurrent expenditure amounted to Rs. 509.04 billion, capital expenditure was Rs. 63.58 billion, and financial expenditure totaled Rs. 114.13 billion during the review period.

Government Revenue:

Total revenue mobilization of the Nepal Government (including transfers to provincial and local governments) stood at Rs. 567.40 billion during the review period.

Revenue mobilization recorded a growth of 10.2 percent in the review period, contrasting with a decrease of 16.1 percent in the same period of the last fiscal year.

Tax revenue amounted to Rs. 510.50 billion, while non-tax revenue was Rs. 56.91 billion during the review period.

Cash Balance of Government:

Cash balance at various accounts of the Government of Nepal maintained with the Nepal Rastra Bank (NRB) stood at Rs. 215.26 billion in mid-February 2024, including Provincial Governments and Local Government Account. This balance increased from Rs. 65.36 billion in mid-July 2023.

Provincial Government

Expenditure and Revenue:

Total expenditure of provincial governments during the review period stood at Rs. 51.74 billion, while resource mobilization amounted to Rs. 101.29 billion.

Total resource mobilization of provincial governments includes grants and revenue transferred from the Nepal Government amounting to Rs. 71.63 billion, along with revenue and other receipts of the provincial governments totaling Rs. 29.66 billion in the review period.

These figures provide insights into the fiscal management of the Nepal Government, including expenditures, revenue mobilization, and the financial status of provincial governments.

Monetary situation:

Money Supply:

Broad money (M2) increased by 7.0 percent in the review period, compared to 4.6 percent in the corresponding period of the previous year. On a year-on-year basis, M2 expanded by 13.7 percent in mid-February 2024.

Net foreign assets (NFA) increased by Rs. 297.72 billion (20.4 percent) in the review period, compared to an increase of Rs. 128.55 billion (11.2 percent) in the corresponding period of the previous year.

Reserve money increased by 1.2 percent in the review period, contrasting with a decline of 2.0 percent in the corresponding period of the previous year. On a year-on-year basis, reserve money increased by 14.0 percent in mid-February 2024.

Domestic Credit:

Domestic credit increased by 3.2 percent in the review period, compared to an increase of 3.9 percent in the corresponding period of the previous year. On a year-on-year basis, domestic credit increased by 8.0 percent in mid-February 2024.

Monetary Sector's net claims on the government decreased by 7.3 percent in the review period, in contrast to an increment of 4.1 percent in the corresponding period of the previous year. On a year-on-year basis, such claims increased by 20.6 percent in mid-February 2024.

Monetary Sector's claims on the private sector increased by 5.1 percent in the review period, compared to an increase of 4.3 percent in the corresponding period of the previous year. On a year-on-year basis, such claims increased by 5.4 percent in mid-February 2024.

Deposit Mobilization:

Deposits at Banks and Financial Institutions (BFIs) increased by Rs. 397.20 billion (7.0 percent) in the review period, compared to an increase of Rs. 253.97 billion (5.0 percent) in the corresponding period of the previous year. On a year-on-year basis, deposits at BFIs expanded by 14.4 percent in mid-February 2024.

The share of demand, saving, and fixed deposits in total deposits stood at 6.2 percent, 27.4 percent, and 59.8 percent respectively in mid-February 2024. These shares were 7.8 percent, 25.8 percent, and 60.1 percent respectively a year ago.

Credit Disbursements:

Private sector credit from BFIs increased by Rs. 197.21 billion (4.1 percent) in the review period, compared to an increment of Rs. 148.12 billion (3.2 percent) in the corresponding period of the previous year. On a year-on-year basis, credit to the private sector from BFIs increased by 4.7 percent in mid-February 2024.

Liquidity Management:

In the review period, the Nepal Rastra Bank (NRB) provided a total liquidity of Rs. 515.11 billion to the Banks and Financial Institutions (BFIs) on a turnover basis. Of this, Rs. 1.20 billion was availed through the standing liquidity facility (SLF) and Rs. 513.91 billion through Overnight Liquidity Facility (OLF). Additionally, a total liquidity of Rs. 543.05 billion was absorbed through deposit collection auctions. In the corresponding period of the previous year, Rs. 3141.99 billion net liquidity was injected through various instruments of open market operations, including SLF.

NRB injected liquidity of Rs. 424 billion through the net purchase of USD 3.19 billion from the foreign exchange market in the review period. This compares to liquidity injection of Rs. 426.28 billion through the net purchase of USD 3.27 billion in the corresponding period of the previous year.

NRB purchased Indian currency (INR) equivalent to Rs. 287.25 billion through the sale of USD 2.16 billion in the review period, compared to INR equivalent to Rs. 338.13 billion purchased through the sale of USD 2.60 billion in the corresponding period of the previous year.

Concessional Loan:

As of mid-February 2024, the outstanding concessional loan remained at Rs. 154.43 billion, extended to 132,706 borrowers. Of this, Rs. 104.60 billion has been extended to 52,574 borrowers for selected commercial agriculture and livestock businesses. Additionally, Rs. 47.73 billion has been loaned to 77,602 women entrepreneurs. A total of 2,530 borrowers have availed Rs. 2.1 billion concessional loans in other specified sectors.

Inter-bank Transaction:

In the review period, inter-bank transactions among BFIs amounted to Rs. 2872.44 billion on a turnover basis. This includes Rs. 2596.18 billion inter-bank transactions among commercial banks and Rs. 276.26 billion among other financial institutions (excluding transactions among commercial banks). In the corresponding period of the previous year, such transactions amounted to Rs. 2260.52 billion, including Rs. 2056.41 billion among commercial banks and Rs. 204.12 billion among other financial institutions (excluding transactions among commercial banks).

These details provide insights into the liquidity management strategies employed by the Nepal Rastra Bank, concessional loan disbursements, and inter-bank transactions among financial institutions.

Interest rate:

Treasury Bills Rate: The weighted average 91-days treasury bills rate remained at 3.34 percent in the seventh month of 2023/24, compared to 9.79 percent in the corresponding month a year ago.

Inter-bank Transaction Rate: The weighted average inter-bank transaction rate among Banks and Financial Institutions (BFIs) decreased from 5.29 percent a year ago to 3.04 percent in the review month.

Average Base Rates: The average base rates of commercial banks, development banks, and finance companies stood at 9.06 percent, 11.13 percent, and 12.70 percent respectively in the seventh month of 2023/24. The average base rate of commercial banks was 10.72 percent in the corresponding month a year ago.

Weighted Average Deposit Rates: Weighted average deposit rates of commercial banks, development banks, and finance companies stood at 7.01 percent, 8.26 percent, and 9.45 percent respectively in the review month. The weighted average deposit rate of commercial banks was 8.41 percent a year ago.

Weighted Average Lending Rates: The weighted average lending rates of commercial banks, development banks, and finance companies stood at 11.08 percent, 12.85 percent, and 13.93 percent respectively in the review month. The rate of commercial banks was 13.03 percent in the corresponding month a year ago.

These figures provide insights into the prevailing interest rates, including treasury bills rate, inter-bank transaction rate, base rates, deposit rates, and lending rates across different types of financial institutions.

Financial access:

Total Number of BFIs: As of mid-February 2024, the total number of Banks and Financial Institutions (BFIs) licensed by the Nepal Rastra Bank (NRB) remained at 112.

Types of BFIs and Operation: Among these licensed BFIs, there are 20 commercial banks, 17 development banks, 17 finance companies, 57 microfinance financial institutions, and 1 infrastructure development bank currently in operation.

Number of BFI Branches: The number of branches of BFIs remained consistent at 11,587 in mid-February 2024 compared to 11,589 in mid-July 2023.

NEPSE Index: The NEPSE (Nepal Stock Exchange) index stood at 2101.16 in mid-February 2024, compared to 2121.87 in mid-February 2023.

Stock Market Capitalization: In mid-February 2024 stood at Rs.3302.84 billion, compared to Rs.3061.96 billion in mid-February 2023.

Number of Listed Companies: It has reached 271 in mid-February 2024. Among these, there are 134 Bank and Financial Institutions (BFIs) and insurance companies, 91 hydropower companies, 21 manufacturing and processing industries, 7 hotels, 7 investment companies, 4 trading companies, and 7 others. The number of listed companies at NEPSE was 246 in mid-February 2023.

Share of Market Capitalization by Sector: The share of BFIs and insurance companies in stock market capitalization is 57.3 percent in mid-February 2024. For hydropower companies, it is 15.9 percent, investment companies 7.6 percent, manufacturing and processing industries 5.2 percent, hotels 3.0 percent, trading companies 0.5 percent, and other companies account for 10.5 percent.

Paid-Up Value of Listed Shares: The paid-up value of 8.21 billion shares listed at NEPSE stood at Rs.813.59 billion in mid-February 2024.

Securities listed and approved: Securities worth Rs.82.57 billion were listed at NEPSE during the seven months of 2023/24. This includes ordinary shares worth Rs.65.86 billion, bonus shares worth Rs.10.59 billion, right shares worth Rs.6.10 billion, and Further Public Offering (FPO) worth Rs.30.23 million. The Securities Board of Nepal approved the total public issuance of securities worth Rs.24.78 billion in the review period, which includes ordinary shares worth Rs.9.81 billion, debentures worth Rs.6.02 billion, right shares worth Rs.5.46 billion, and mutual funds worth Rs.3.50 billion.

Capital market:

NEPSE Index: The NEPSE (Nepal Stock Exchange) index stood at 2101.16 in mid-February 2024, compared to 2121.87 in mid-February 2023.

Stock Market Capitalization: In mid-February 2024 stood at Rs.3302.84 billion, compared to Rs.3061.96 billion in mid-February 2023.

Number of Listed Companies: It has reached 271 in mid-February 2024. Among these, there are 134 Bank and Financial Institutions (BFIs) and insurance companies, 91 hydropower companies, 21 manufacturing and processing industries, 7 hotels, 7 investment companies, 4 trading companies, and 7 others. The number of listed companies at NEPSE was 246 in mid-February 2023.

Share of Market Capitalization by Sector: The share of BFIs and insurance companies in stock market capitalization is 57.3 percent in mid-February 2024. For hydropower companies, it is 15.9 percent, investment companies 7.6 percent, manufacturing and processing industries 5.2 percent, hotels 3.0 percent, trading companies 0.5 percent, and other companies account for 10.5 percent.

Paid-Up Value of Listed Shares: The paid-up value of 8.21 billion shares listed at NEPSE stood at Rs.813.59 billion in mid-February 2024.

Securities listed and approved: Securities worth Rs.82.57 billion were listed at NEPSE during the seven months of 2023/24. This includes ordinary shares worth Rs.65.86 billion, bonus shares worth Rs.10.59 billion, right shares worth Rs.6.10 billion, and Further Public Offering (FPO) worth Rs.30.23 million. The Securities Board of Nepal approved the total public issuance of securities worth Rs.24.78 billion in the review period, which includes ordinary shares worth Rs.9.81 billion, debentures worth Rs.6.02 billion, right shares worth Rs.5.46 billion, and mutual funds worth Rs.3.50 billion.

Major Highlights:

Here's a summary of the economic indicators for Nepal:

Consumer Price Index (CPI)-based inflation remained steady at 5.01 percent year-on-year.

Imports decreased by 2.3 percent, exports decreased by 7.1 percent, and the trade deficit decreased by 1.8 percent.

Remittances increased significantly by 21.6 percent in Nepalese Rupee (NPR) terms and 19.1 percent in United States Dollar (USD) terms.

The Balance of Payments maintained a surplus of Rs. 297.72 billion.

Gross foreign exchange reserves were NPR 1844.94 billion and USD 13.89 billion.

Nepal Government expenditure amounted to Rs. 686.75 billion while revenue collection reached Rs. 567.40 billion.

Broad money (M2) increased by 7.0 percent, expanding by 13.7 percent year-on-year.

Deposits at Banks and Financial Institutions (BFIs) increased by 7.0 percent, and private sector credit increased by 4.1 percent. Year-on-year, deposits increased by 14.4 percent, and private sector credit increased by 4.7 percent.

Source: Nepal Rastra Bank