Rising inflation, lower remittances and depletion of foreign exchange reserves

Rising inflation, lower remittances and depletion of foreign exchange reserves

Bank of Nepal Rastra, Baluwatar. (File photo)

KATMANDU: Year-on-year consumer price inflation stood at 7.11% in the fifth month of the current 2021/22 fiscal year, down from just 2.93% a year ago.

According to the current macroeconomic and financial situation report released by Nepal Rastra Bank (NRB) on the basis of five-month data ending mid-December 2021, food and beverage inflation stood at 5 , 67 percent while non-food and services inflation stood at 8.25 percent in the review period.

The price of ghee and oil; transport; pulses and legumes; education and tobacco products increased by 28.52 percent, 16.25 percent, 11.79 percent, 11.78 percent and 11.74 percent, respectively, year-on-year.

Inflation in the Kathmandu Valley, Tarai, Hills and Mountains has also increased compared to last year.

Meanwhile, that inflation in neighboring India was 5.59% in December 2021.

Trade (import and export)

In terms of trade, exports increased 105.6% to 102.92 billion rupees, compared to an increase of 5.1% in the same period of the previous year in the five months of 2021 / 22. During the period considered, exports to India and other countries increased by 138.0% and 28.5 respectively, while exports to China decreased by 1.4%.

Exports of cardamom, tea, zinc plate, wire, copper rod, among others, decreased during the review period, while exports of palm oil, soybean oil, cakes, polyester yarns and yarns, jute, among others, have increased.

At the same time, imports increased by 59.5% to Rs. 838.41 billion. Imports from India, China and other countries increased by 44.6%, 57.8% and 111.2% respectively.

The total trade deficit increased by 54.7% to reach 735.49 billion rupees in the five months of 2021/22. Such a deficit had contracted by 10.9% during the corresponding period of the previous year. The export/import ratio increased to 12.3% during the review period from 9.5% during the corresponding period of the previous year.

In the first five months of the fiscal year, imports from India by paying convertible foreign currency amounted to Rs. 92.34 billion.

Discounts

Likewise, remittances fell 6.8 percent to 388.58 billion rupees during the reporting period, compared to an increase of 11.0 percent during the same period last year.

In US dollars, remittances fell 7.3 percent to 3.26 billion during the review period, compared to an increase of 6.4 percent during the same period last year.

At the same time, the number of Nepalese workers (institutional and individual-new and legalized) who obtained approval for overseas employment increased significantly to reach 131,082 during the reporting period. It had declined 92.7% over the same period last year.

The number of Nepalese workers (Renew Entry) who obtained approval for overseas employment increased by 295.8% to 99,580 during the review period. It had declined 77.3 percent over the same period of the previous year.

Foreign exchange reserves

Gross foreign exchange reserves declined 13.2 percent to 1,214.03 billion rupees in mid-December 2021 from 1,399.03 billion rupees in mid-July 2021. In US dollars, gross foreign exchange reserves were decreased by 14.7% to 10.03 billion in mid-December 2021 compared to 11.75 billion in mid-July 2021.

Of the total foreign exchange reserves, reserves held by the NRB decreased by 12.9% to Rs 1084.64 billion in mid-December 2021, compared to Rs 1,244.63 billion in mid-July 2021.

Reserves held by banks and financial institutions (excluding NRB) also declined by 16.2% to 129.40 billion rupees in mid-December 2021 from 154.39 billion rupees at mid-December 2021. mid-July 2021. The share of Indian currency in total reserves stood at 25.1% as of mid-December 2021. -December 2021.

Based on the five-month imports of 2021/22, the banking sector’s foreign exchange reserves are only sufficient to cover prospective imports of goods of 7.5 months and imports of goods and services of 6.8 months.