Inflation soars, remittance and forex reserve deplete, BoP further in loss

The economic indicators have been continuously worsening since the begining of the current fiscal year 2021-22.

According to the current macroeconomic and financial situation report published by the central bank, inflation has been looking up, remittance and foreign currency reserve are depleting, and Balance of Payment (BoP) has seen further loss. 

"The year-on-year consumer price inflation has stood at 7.11 per cent in the fifth month of current fiscal year 2021-22 compared to only 2.93 per cent a year ago's same period," the current macroeconomic and financial situation report based on five months’ data ending mid-December, 2021, reads. "The food and beverage inflation stood at 5.67 per cent, whereas non-food and service inflation stood at 8.25 per cent by the end of the fifth month of the current fiscal year," the report reads, adding that the price of ghee and oil; transportation; pulses and legumes; education and tobacco products rose by 28.52 per cent, 16.25 per cent, 11.79 per cent, 11.78 per cent and 11.74 per cent, respectively on a year-on-year basis. "Inflation in Kathmandu Valley, Tarai, Hills and Mountains have also increased compared to last year."

As of the first five months, Terai witnessed the largest price hike of 7.52 per cent, followed by hill (6.95 per cent), Kathmandu Valley (5.91 per cent) and mountain (4.91 per cent).

The monthly consumer price inflation climbed to its highest in 64 months in December 2021, rising to 7.11 per cent year-on-year from 5.32 per cent in November, the central bank data reveals, adding that the last time the country witnessed the highest monthly inflation rate was in September 2016-17 at 7.9 per cent.

Experts warn inflation may jump to a double-digit figure this fiscal year. And so does the central bank's Inflation Expectation Survey published in November 2021. It showed that a majority of people expected average prices of goods and services to rise by a staggering 11.3 per cent over the next year.

Likewise, remittance inflows decreased by 6.8 per cent to Rs 388.58 billion in the fifth month against an increase of 11 per cent in the same period last year. "In the US Dollar terms, remittance inflows decreased by 7.3 per cent to 3.26 billion in the review period against an increase of 6.4 per cent during the same period last year."

However, the number of Nepali migrant workers (institutional and individual-new and legalised) taking approval for foreign employment increased significantly to 131,082 in the fifth month of the current fiscal year. It had decreased by 92.7 per cent in the same period last year."

Likewise, the number of Nepali migrant workers (Renew entry) taking approval for foreign employment department increased by 295.8 per cent to 99,580, which had decreased by 77.3 per cent in the same period last year.

The widening trade deficit and depleting inflow of remittance has hit the Balance of Payment (BoP). According to the central bank report, the Balance of Payment (BoP) remained at a deficit of 195.01 billion in the first five months of the current fiscal year, way down from the deficit of Rs 150.38 billion in the first four month. It shows that the country faced a net loss of Rs 44.63 billion just in one month’s period of transaction with the rest of the world.

LiIkewise, the deficit of the current account also deepened further from Rs 223.19 billion to Rs 300.69 billion.

Another key economic indicator, the gross foreign exchange reserves also decreased by 13.2 per cent to Rs 1214.03 billion in mid-December 2021 from Rs 1399.03 billion in mid-July 2021, the central bank report reads, adding that in US Dollar terms, the gross foreign exchange reserves decreased by 14.7 per cent to 10.03 billion in mid-December 2021 from 11.75 billion in mid-July 2021. "Of the total foreign exchange reserves, reserves held by the central bank decreased by 12.9 per cent to Rs 1084.64 billion in mid-December 2021 from Rs 1244.63 billion in mid-July 2021."

Likewise, reserves held by banks and financial institutions (except central bank) also decreased by 16.2 per cent to Rs 129.40 billion in mid-December 2021 from Rs 154.39 billion in mid-July 2021. The share of Indian currency in total reserves stood at 25.1 per cent in mid-December 2021.

Based on the imports of five months of 2021-22, the foreign exchange reserves is sufficient only to cover the prospective merchandise imports of 7.5 months, and merchandise and services imports of 6.8 months.

In terms of trade, exports increased by a whopping 105.6 per cent to Rs 102.92 billion compared to an increase of 5.1 per cent in the same period of last fiscal year. At the same time, imports also increased by 59.5 per cent to Rs 838.41 billion. Over the period, the trade deficit soared by 54.7 percent to Rs 735.49 billion.  "The export to import ratio increased to 12.3 per cent in the review period from 9.5 per cent in the same period of the previous year."

During the first five months of the current fiscal year, imports from India by paying convertible foreign currency amounted Rs 92.34 billion, the report adds.