News Summary
Prepared after editorial review.
- According to Nepal Rastra Bank’s report, unprecedented growth in remittances and foreign exchange reserves have strengthened the country’s external economic indicators significantly.
- In the first 11 months of the current fiscal year, foreign exchange reserves reached NPR 3.755 trillion, and remittance inflows totaled NPR 2.12 trillion.
- Despite strong external factors, internal economic indicators such as inflation and sluggish bank credit expansion remain weak.
June 13, Kathmandu — Nepal’s external economic indicators have shown considerable strength, while internal indicators continue to display weakness.
According to the latest macroeconomic and financial status report released Monday by Nepal Rastra Bank, external indicators such as remittances, foreign exchange reserves, the net settlement position, and foreign trade parameters all show robust performance.
However, internal indicators including inflation, bank lending, interest rates, domestic production, investment, employment, and revenue collection over the past 11 months have not shown promising progress.
Foreign Exchange Reserves Reach Record High
The central bank reported that the country’s foreign exchange reserves have reached NPR 3.755 trillion, the highest level ever recorded.
This represents a 40.3% increase compared to the previous fiscal year end, where reserves stood at NPR 2.677 trillion as of mid-July last year.
In terms of US dollars, reserves grew by 26.5% during the same period, standing at approximately USD 2.468 billion as of mid-June.
Of the total reserves, NPR 3.33 trillion is held by Nepal Rastra Bank and NPR 425 billion by commercial banks and financial institutions. Indian currency accounts for 21.5% of the total foreign exchange reserves.
Significant Increase in Remittance Inflows
Remittance inflows have grown considerably. In the first 11 months of the current fiscal year, remittances amounted to NPR 2.12 trillion.
This is 38.2% higher compared to the same period last year, according to the central bank. In June 2023, remittance inflows were NPR 230.89 billion.
The month of April saw record remittance inflow of NPR 257 billion. Comparatively, in June 2022, remittances stood at NPR 176.32 billion.
Remittances in US dollars rose by 29.6% to USD 1.459 billion during this period, a notable increase from the 12.8% growth registered last year.
Up to mid-June, net personal transfers reached NPR 2.321 trillion, increasing from NPR 1.669 trillion over the same period last year.
The central bank further reports that 367,211 Nepali workers received final labor approvals for foreign employment during the review period, while 355,735 obtained institutional, individual, or renewal approvals.
Net Settlement Savings Doubled
Due to higher foreign currency inflows compared to outflows, net settlement savings have doubled compared to fiscal year 2024.
As of the first 11 months of the current fiscal year, the net settlement position recorded a saving of NPR 926.06 billion, against NPR 491.44 billion in the previous fiscal year. In US dollars, this saving stands at USD 639 million, up from USD 362 million last year.
The net settlement position covers economic and financial transactions between resident and non-resident individuals and institutions over a defined period. It positively affects foreign currency inflows, especially given the significant remittance inflows.
The current account also showed a surplus of NPR 802.6 billion during the review period, up from NPR 321.74 billion last year. In US dollars, the current account surplus is USD 553 million.
Inflation Nearly Doubles
Inflation in May nearly doubled compared to last year. Nepal Rastra Bank states that annual point-to-point consumer inflation reached 5.22% in May, significantly higher than last year’s 2.72%.
However, the average inflation over the first 11 months of the current fiscal year was limited to 2.89%, compared to 4.24% for the same period last year.
Within this period, inflation in the non-food and service sector (5.37%) was higher than in the food and beverage sector (4.95%). Last year, these figures were 0.54% and 3.94%, respectively.
Slowdown in Credit Expansion
Bank and financial institutions extended only 6.2% credit growth during the first 11 months of this fiscal year. A total of NPR 340 billion in loans was disbursed from mid-July to mid-June, less than the 8% growth of the previous year.
Total loans extended by banks and financial institutions stood at NPR 5.838 trillion as of mid-June.
Despite abundant liquidity and lower interest rates, credit growth has slowed. The average base rate of commercial banks dropped to 4.88% in May from 6.09% the previous year. Development banks’ base rate fell from 8.29% to 6.86%, and finance companies’ from 9.02% to 7.16%.
Weighted average lending rates have also declined notably: from 7.99% to 6.64% for commercial banks, 9.40% to 7.71% for development banks, and 10.22% to 8.90% for finance companies.
Increase in Deposit Growth
Deposits in banks and financial institutions grew by 10.3% in the first 11 months of this fiscal year. An additional NPR 748 billion was deposited, bringing the total deposits to NPR 8.012 trillion by mid-June.
This deposit growth rate exceeds last year’s 8%, posing added challenges for liquidity management as deposit growth outpaces lending.
Tourist Expenditure Declines Slightly
Tourist expenditures in Nepal have seen a modest decline. The central bank reports that tourism income decreased by 0.1% to NPR 8.222 billion in the first 11 months, slightly lower than NPR 8.233 billion in the previous year.
During this period, tourism expenditure was NPR 19.365 billion, down from NPR 20.3 billion the prior year. Educational expenses stood at NPR 13.223 billion in 11 months, compared to NPR 12.475 billion in the previous fiscal year.
Due to higher expenditures than income, net service income recorded a deficit of NPR 7.254 billion, although this is an improvement from last year’s deficit of NPR 8.278 billion.
