Stagflation, but budget deficit swells,

Though, the government seems to have been able to check inflation, it was unable to stop the rising budget deficit. But inflation is also at double digit. Last month it was 9.2 percent.
The year-on-year consumer inflation rose to 11 per cent in mid-June 2008, from 4.5 per cent a year ago. Inflation was driven by a significant rise in the price of food and beverage group (13 per cent) as well as non-food and service group (nine per cent) in the review period. The price rise of food and beverages and non-food and service group was 5.8 per cent and 3.1 per cent, respectively, a year ago.
However, the budget deficit swelled to Rs 9.30 billion in the first 11 months of the fiscal year 2007-08. The deficit was Rs 6.93 billion in the corresponding period the last fiscal year. The higher growth of government expenditure relative to resource mobilisation accounted for such a budget deficit in the review period, states the current macroeconomic situation report, based on the first 11 months' data of the fiscal year 2007-08. The domestic financing of the budget deficit through the issuance of securities (excluding overdraft) amounted to Rs 13.33 billion in the review period.
According to the Nepal Rastra bank (NRB) report, the government cash balance with NRB amounted to Rs 6.65 billion as in mid-June 2008. Including a cash balance of Rs 3.12 billion for the previous year, the cumulative cash balance of the government reached Rs 9.77 billion in mid-June 2008.
However, the net domestic borrowing of the government remained at a negative of Rs 633.6 million on account of the repayment of Rs 7.31 billion domestic debt and cash balances with NRB in the review period. The outstanding domestic debt (including cash balance with NRB) of the government stood at Rs 95.55 billion in mid-June 2008. Such outstanding debt was Rs 96.18 billion in mid-July 2007.
In the first 11months of 2007-08, revenue mobilization also soared by 25.5 per cent — amounting to Rs 90.17 billion compared to an increase of 20.8 per cent in the corresponding period of last fiscal year. Such an impressive growth of revenue was on account of substantial increase in the import of merchandise goods and resulting increase in customs duties, VAT revenue and excise duties, increase in income tax and increase in non-tax revenue.
"Of the total revenue mobilisation, VAT revenue grew by 18.8 per cent to Rs 28.7 billion in mid-June 2008," the central bank's report states. The growth in VAT revenue was on account of growing imports and consumption induced by the rise in remittances and reforms in VAT administration such as establishment of Large Taxpayers' Unit, strengthening of the billing system and non-filers' management.
In the review period, customs revenue rose by 21.2 per cent to Rs 18 billion compared to an increase of 11.4 per cent in the same period the last fiscal year. Similarly, income tax revenue increased by 29.8 per cent to Rs 14.54 billion. The evolution of corporate culture on account of growth in banks and financial institutions contributed to such high income tax collection. Last year, such revenue had risen by 31.4 per cent.
In the review period, non-tax revenue grew by 41.7 per cent to Rs 15.55 billion compared to an increase of 19.7 per cent in the same period of the preceding year. Such increase in non-tax revenue was on account of increase in dividend paid by some public enterprises including NRB as well as the amount received by the government in the form of principal repayment from Nepal Telecom, Nepal Electricity Authority and Civil Aviation Authority.