ECONOMY: Growing Deficit

Although Nepal has a Balance of Payments at Rs.32.8 billion, the trade deficit is up by 16 percent

March 22, 2015, 5:45 p.m. Published in Magazine Issue: Vol. : 08 No.- 18 March. 20 - 2015 (chaitra 6, 2071)

As Nepal’s overall competiveness is declining, the country's trade deficit has continued to balloon in the last seven months of the current fiscal year. Nepal’s import of PLO continues to rise compared to Nepal’s export items.

Nepal’s last seven months' macroeconomic situation has shown mixed results with some positive indication in service sector. However, Nepal’s overall trade deficit is going high and there are no signs for it to reverse again.

According to 'Current Macroeconomic Situation of Nepal' report made public by the Nepal Rastra Bank (NRB), Nepal's total trade deficit jumped by 16.1 percent to Rs 394.59 billion as of mid-February 2014/15. The growth, however, is slow compared to an increase of 25.3 percent recorded during the same period of previous fiscal year.

Trade deficit with India, China and other countries in the review period increased by 10.7 percent, 51.5 percent and 13.2 percent, respectively. Such deficits had increased by 26 percent, 11.1 percent and 32.1 percent, respectively, in the same period of 2013/14.

“Merchandise imports went up by 13.3 percent to Rs 444.77 billion, while country's merchandise exports slumped by 5.1 percent to Rs 50.19 billion in the seven months of 2014/15. Such imports and exports had gone up by 24.2 percent and 17.6 percent to Rs 392.69 billion and Rs 52.89 billion, respectively, in the same period of the previous year,” said NRB’s report.

Despite several efforts, Nepal’s exports to India decreased by 9.5 percent compared to last year.

"Exports to India decreased mainly due to the decrease in exports of cardamom, zinc sheet, jute products, textiles, among others," reads the report.

There are some positive signs on trade with China. Nepal has made certain progress in exports to China, which increased by 13.7 percent in the review period compared to a rise of 12.1 percent in the same period of the previous fiscal year. "The growth is mainly due to rise in exports of tanned skin, handicraft goods, noodles, and readymade garments, among others," the report adds.

However, Nepal’s export to other countries is yet to take momentum. Exports to other countries are up by 2.5 percent in the review period compared to a growth of 11.2 percent in the same period of the last fiscal year.

With Nepal’s exports of readymade garments, pashmina products, tea, and readymade leather goods, the total export of Nepal has increased.

In the import front, Nepal continues to import more products. Imports from India went up by 8 percent during the review period compared to a growth of 25.3 percent in the same period of the previous year. As demands for various products continue to increase, imports from other major trading partners increased sharply by 50.1 percent compared to a growth of 11.1 percent in the same period of last fiscal year.

As remittances continue to increase, Nepal’s balance of payment (BoP) recorded a surplus of Rs 32.8 billion in the seven months of 2014/15 compared to a surplus of Rs 95.78 billion in the same period of last fiscal year. The current account surplus went down to Rs 11.69 billion during the review period from Rs 67.24 billion in the corresponding period of the previous year.

"The low level of surplus in the current account is primarily due to the growth of merchandise and services imports, decrease in grants and slow growth of workers' remittances in the review period," states the report.

Despite the decline of remittances in the past few months, the total remittance increased by a marginal 2.9 percent to Rs 320.93 billion. Remittance flow had increased by 38.6 percent in the corresponding period of last fiscal year.

Nepal’s foreign currency reserve is in good shape. According to NRB, the gross foreign exchange reserves increased by 4.9 percent to Rs 698.01 billion in mid-February 2015 from a level of Rs 665.41 billion as of mid-July 2014. Such reserves had increased by 22 percent to Rs 650.54 billion in the same period of previous year.

Although there are some positive signs, Nepal’s economy continues to be in a  vulnerable position.

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