NRB paints gloomy economic picture, govt fails to boost exports, forex reserves fall

The budget deficit in the first four months of this fiscal year hasdoubled compared with the same period last fiscal year, according to the central bank.
“In the first four months of 2009-10, government budget deficit stood at Rs 3.40 billion compared to a deficit of Rs 1.26 billion in the corresponding period of the previous year,” said the current macroeconomic situation, based on the first four months'’ data of this fiscal year published by the Nepal Rastra Bank (NRB) here today. The deficit is attributed to the total government spending that has increased by 36.5 per cent to Rs 50.61 billion compared to an increase of only 7.3 per cent in the same period last year. “The high growth of recurrent as well as capital expenditure accounted for such an increase in the government expenditure,” it added.
Both the administrative expenses and development expenses have gone up in comparison to the same period. “Recurrent expenditure increased by 50.6 per cent to Rs 35.85 billion against a decrease of 2.5 per cent in the same period last fiscal year, whereas capital expenditure increased by 46.5 per cent to Rs 4.07 billion in contrast to a decline of 17.5 per cent in the corresponding period last fiscal year,” said the central bank’s report.
However, principal repayment expenditure declined by 52.6 per cent to Rs 2.64 billion against an increase of 26.7 per cent in the same period last fiscal year.
The government has been successful in revenue mobilisation as it grew by 41.6 per cent to Rs.46.70 billion compared to an increase of 35.4 per cent in the corresponding period of the previous year. Government's firm commitment to control the revenue leakage and tax administration reforms contributed to such an increase in the revenue mobilization, said the central bank.
But the external sector exhibited a dismal picture in the first four months as exports plummeted by 23.7 per cent in contrast to an upsurge of 38.1 per cent in the same period in the last fiscal year.
“Of the total exports, export to India fell by 19.1 per cent in contrast to a rise of 16.2 per cent in the same period of 2008-09,” it said adding that exports to other countries also went down by 30 per cent as against a rise by 85.4 per cent in the same period of the previous year.
According to the central banks’ report, exports to India fell considerably arising from the decline in the exports of readymade garments, zinc sheet, shoes and sandals, thread and marble slab, among others. Likewise, exports to other countries decreased because of the decline in the export of pulses, woolen carpets, readymade garments, tanned skin and herbs.
However, total imports rose by 27.8 per cent compared to a growth of 41.1 per cent in the corresponding period of the previous fiscal year. “While imports from India went up by 28.9 per cent compared with a growth of 23.7 per cent in the same period of last fiscal year, imports from other countries grew only by 26.6 per cent compared with a sharp growth of 68.8 per cent in the same period of 2008-09,” the report said.
Similarly, the overall Balance of Payment (BoP) recorded a deficit of Rs 20.49 billion in contrast to a surplus of Rs 11.86 billion in the same period of the previous year
The current account also registered a deficit of Rs 13.94 billion in the first four months as against a surplus of Rs 8.38 billion in the same period last fiscal year. The report has highlighted a number of factors like expansion in trade deficit by 48.9 per cent, under transfers, decline of grants by 10.2 per cent, and decline of remittances inflow – that has gone up by just 6.6 per cent compared with its significant growth of 65.9 per cent in the same period last fiscal year – for the current account deficit.
The central bank is also worried over the BoP deficit and current account deficit. Recently governor Bijaya Nath Bhattarai has said that the Nepal Rastra bank is worried over the BoP and current account deficit.
The gross foreign exchange reserves stood at Rs 248.89 billion in mid November 2009 – a drop by 11.1 per cent compared to the level as at mid July 2009. “However, such reserves had gone up by 8.8 per cent in the same period of last fiscal year,” according to the central bank.
In US dollar terms, gross foreign exchange reserves fell by 6.2 per cent to $3.36 billion in mid November 2009. In the same period last fiscal year, such reserves had dropped by only 5.3 per cent.
“The current level of reserves is sufficient for financing merchandise imports of 8.5 months and merchandise and service imports of 7.3 months only,” it said.