Trade deficit continue to widen, remittance inflow continue to look up, government treasury swells

Trade deficit continue to balloon as the country continue to import more and failed to boost export, though remittance inflow and forex reserve continue to swell.

Nepal exported merchandise worth Rs 45.14 billion, whereas imported merchandise worth Rs 333.9 billion, widening the trade deficit to Rs 288.76 billion in the first half of the current fiscal year, according to the central bank that has revealed that trade deficit with the largest trade partner India increased to Rs 190.95 billion.

However, the ratio of export to import declined to 13.5 per cent from 14.5 per cent a year ago, the central bank said. "Improvement in export was mainly due to rise in export of woolen carpet and ready made garment."

Likewise, Balance of Payment (BoP) remained surplus of Rs 77.19 billion on strong remittance inflow. Nepali migrant workers sent home Rs 265.62 billion in the first six months of the current fiscal, some 34.4 per cent more than in the same period last fiscal year. The remittance income also surged due to weakening Nepali currency against the US dollar that has seen appreciation of 3.2 per cent in mid-January, 2014 from mid-July, 2013, in six months. The US dollar appreciation also pushed up income from tourism sector as it went up to Rs 23.29 billion, some 39.2 per cent more compared to the same period last fiscal year.

Likewise, foreign grants received in the first half of the fiscal year stood at Rs 22.69 billion against Rs 11.88 billion in the same period a fiscal year ago.

As of mid-January, gross foreign exchange reserve stood at Rs 624.60 billion, some 17.1 per cent more than in mid-July. The reserve is sufficient for financing merchandise imports of 11.4 months and merchandise-cum-service imports of 10.2 months, according to the central bank.

However, the price hike did not see any improvement. The year-on-year inflation as measured by consumer price index increased by 9.7 per cent in mid-January compared to 9.8 per cent in the same period of the last fiscal year and 10.3 per cent a month ago.

The indices of food and beverages group and non-food and services group increased by 12.9 per cent and 6.9 per cent, respectively, during the review period. Such indices had increased by 9.6 per cent and 10.2 per cent, respectively, in the corresponding period of the previous year.

But the government treasury swelled to Rs 56.10 billion on regular revenue mobilisation that increased by 21.5 per cent to Rs 163.44 billion and government's inability to spend on development expenses that is going to hit employment creation and pull the economic growth down from the projection of 5.5 per cent for the current fiscal year.

The government's projection of economic growth could not be achieved also due to low private sector borrowing and banks and financial institutions flush with cash. "The banks and financial institutions have Rs 95.41 billion deposit in the six months of the current fiscal year against Rs 54.13 billion in the same period of the lat fiscal year," the central bank said, adding that the credit to private sector stood at Rs 84.83 billion against Rs 95.78 billion in the same period of the last fiscal year."