Central bank paints bleak economic picture

Nepal Rastra Bank has painted a bleak picture of the economy as according to its report the overall Balance of Payment (BoP) recorded a deficit, gross foreign exchange reserves dropped and exports declined in the first six months of the current fiscal year.

The liquid assets of commercial banks had grown by 8.8 per cent amounting to Rs 164.4 billion till mid-January 2009 but declined by 12.3 per cent from mid-July 2009 amounting to Rs 188.1 billion till mid-January 2010 amounting Rs 164.9 billion ????, said the central bank in current macroeconomic situation -- based on the first six months' data for the current fiscal year published here today.

"Of the components of liquid assets, liquid fund declined by 13.1 per cent. A decline in commercial banks balance with the Nepal Rastra Bank (NRB) and that held abroad led to such a reduction in liquid fund of commercial banks," said the central bank.

The balance held abroad by commercial banks declined by Rs 5.1 billion to Rs 48.3 billion ????, and the balance with NRB declined by Rs 11.6 billion. Similarly, investments on government securities declined by 11 per cent (Rs 7.9 billion).

The higher expansion of loan and advances relative to the deposit mobilisation led to a change in the portfolio of commercial banks. "Loans and advances of commercial banks increased by 11.5 per cent (Rs 59.5 billion)," NRB said adding that the higher expansion of loan and advances relative to deposit mobilisation of commercial banks increased the credit-deposit ratio to 89.3 per cent in mid-January 2010 from 81.2 per cent in mid-July 2009. "On the other hand, the liquidity-deposit ratio declined to 28.6 percent in mid-January 2010 from 34.2 per cent in mid-July 2009."

However, NRB injected net liquidity amounting to Rs 34.9 billion. During the period, Rs 7.4 billion and Rs 1 billion was mopped up through outright auction and reverse repo auction, respectively while Rs 40 billion and Rs 3.4 billion were injected through repo and outright purchase auction, respectively. In the same period last year, liquidity amounting to Rs 20.7 billion was mopped up.

"We injected net liquidity amounting to Rs 37.6 billion through net purchase of $494.8 million from commercial banks. A net liquidity of Rs 73.2 billion was injected through the net purchase of $963.6 million in the same period last year," NRB said.

NRB purchased Indian currency worth Rs 49.8 billion through the sale of $1.1 billion in the Indian money market during the review period. Indian currency equal to Rs 33.9 billion was purchased through the sale of $720 million in the corresponding period the previous year. "An accelerated trade deficit with India contributed to such a high volume of Indian currency purchase," the central bank said.

"The overall BoP recorded a deficit of Rs 19.79 billion, contrary to a surplus of Rs 28.53 billion in the same period last year," the central bank said. "Gross foreign exchange reserves dropped by 14 per cent to Rs 240.83 billion from a level of Rs 279.99 billion as at mid-July 2009."

Though government budget surplus stood at Rs 10.16 billion compared to a surplus of Rs 7.42 billion in the same period last year, total government spending increased by 31.8 per cent to Rs 86.29 billion compared to an increase of 12.3 per cent in the corresponding period the previous year. The development expenses also went up almost three-fold by 31.8 per cent to Rs 86.29 billion compared to an increase of 12.3 per cent in the same period last year. Also, recurrent expenditure increased over three-fold by 40.2 per cent to Rs 60.64 billion against last year's corresponding period which saw an increase of 13.1 per cent.

Due to government apathy and incompetence, exports declined by 12.1 per cent -- contrary to a growth of 22.3 per cent in the same period last year. "Exports to India dropped by four per cent against a growth of 1.3 per cent and exports to other countries decelerated by a whopping 23 per cent contrary to a growth of 70.5 per cent in the same period last year," said the central bank.