This macroeconomic report is prepared based on nine month’s data of FY 2018/19 published by NRB. The key macro-economic indicators and variables are highlighted in the table below, and explained in further section:
A. NEPSE and Ratio of Market Cap to GDP
The NEPSE index as at Mid-April 2019 declined by 7.32% to close at 1,184.02 points, compared to 1,277.55 points in the same period last year. The market capitalization of NEPSE as well declined from NPR 1,497.80 billion in Mid-April 2018 to NPR 1,462.51 billion in Mid-April 2019.
Moreover, the ratio of market capitalization of NEPSE to GDP as at Mid-April 2019 has also dropped down to 42.22% compared to 49.42% in the last year during the same review period.
B. INTEREST RATES
To evaluate current scenario of interest rate in the economy, interbank rate and base rate of commercial banks are taken into consideration.
As shown in the chart below, the interbank rate of commercial banks as at Mid-April 2019 is still at the higher end at 5.28%, mainly due to rise in interbank borrowing among commercial banks in order to maintain their tight CCD ratio. The interbank rate during the same period a year ago was at 4.12%.
The base rate of commercial banks has hit the new year-low of 9.64% in Mid-April, 2019 compared to 10.40% a year ago. This has set the weighted average lending rate at 12.28%. On the other hand, the weighted average deposit rate stands at 6.67%. Such rates were 12.10% and 6.64% respectively in the corresponding month of the previous year.
C. INFLATION RATE
As reported by NRB, the consumer price inflation which was 5.33% a year ago noticeably declined to 4.40% in Mid-April 2019, mainly due to drop in the price of food and beverage as well as non-food and service group, which contributed to a decline in overall inflation during the review period. Moreover, the ongoing market interest rate on deposits or, government bond and corporate debentures could easily beat this inflation rate.
Real Interest Rate
Considering nominal interest rate as weighted average deposit rate of 6.67% (as at Mid-April 2019) and inflation rate of 4.40%, the real interest via Fisher equation is 2.27% only.
D. DEPOSIT AND LENDING GROWTH
Deposit Growth: The deposits of BFI’s as at Mid-April 2019 increased by 11.09% to NPR 3,151.16 billion, compared to NPR 2,836.65 billion in Mid-July 2018. The growth during the same period last year was 9.59%. The share of demand, saving and fixed deposits in total deposits stood at 8.60 percent, 33.60 percent and 47.30 percent respectively in Mid-April 2019. Such shares were 8.70 percent, 35.80 percent and 44.90 percent respectively a year ago. And the share of institutional deposits in total deposit of BFIs stood at 45.20 percent in Mid-April 2019. Such share was 43.80 percent a year ago.
Credit Growth: The credit disbursement of BFI’s as at Mid-April 2019 increased to NPR 2,832.92 billion by 16.93%, compared to NPR 2,422.78 billion in Mid-July 2018. The growth during the same period last year was 16.26%. Of the total outstanding credit of BFIs in Mid-March 2019, 64 percent is against the collateral of land and building and 14.10 percent against the collateral of current assets (such as agricultural and non-agricultural products). Such ratios were 61.4 percent and 14.8 percent respectively a year ago.
In the review period, term loan extended by BFIs increased 24.70 percent, overdraft increased 13 percent, trust receipt (import) loan increased 13.10 percent, demand and working capital loan increased 21.10 percent, real estate loan (including residential personal home loan) increased 9.20 percent, margin nature loan increased 2.30 percent and hire purchase loan increased 7.4 percent.
Though the liquidity situation is at some ease as of now after the banks have reached a gentleman agreement to fix the interest rate ceiling at 9.25 percent for the private fixed deposits; but if we compare the credit growth rate of 16.93% with the deposit growth rate of 11.09%, then the credit crunch is likely to reoccur again if the deposit growth couldn’t matchup with the credit demand and the capital expenditure from the government’s side doesn’t gain pace.
E. LIQUIDITY MANAGEMENT
In the review period, NRB mopped up NPR 100.35 billion through open market operations. Of which, NPR 79.65 billion was mopped up under deposit collection auction and NPR 20.70 billion through reverse repo auction on a cumulative basis. Rs.130.25 billion liquidity was mopped up in the corresponding period of the previous year.
On the other hand, NRB injected NPR 39.53 billion liquidity through repo auctions under open market operations in the review period. Rs. 98.92 billion liquidity was injected in the corresponding period of the previous year. Moreover, NRB injected net liquidity of NPR 252.22 billion through the net purchase of USD 2.21 billion from foreign exchange market. Net liquidity of NPR 327.89 billion was injected through the net purchase of USD 3.18 billion in the corresponding period of the previous year. BFIs have also utilized standing liquidity facility (SLF) of Rs. 9.72 billion in the review period. Such facility utilized in the corresponding period of the previous year was Rs. 29.38 billion.
F. FISCAL SITUATION
The budget surplus of the Government of Nepal (GoN) recorded to NPR 17.92 billion in nine months of FY 2018/19 from the deficit of NPR 112.75 billion in the corresponding period of the previous year. Of the total revenue budget of NPR 831.32 billion, 70.85% has been outturned in the first nine months of FY 2018/19. In contrast, only 45.36% of the expenditure budget of NPR 1,315.16 billion has been attained in nine months of current fiscal year.
In comparison to nine months of FY 2017/18, the expenditure of federal government (based on banking transactions) decreased by 7.31% to reach at NPR 596.62 billion. On the other hand, the revenue of federal government (including the amount to be transferred to provincial and local governments) witnessed a growth of 21.45% compared to corresponding period of the last fiscal year. The government revenue for nine months in this fiscal year stood at NPR 589.00 billion compared to NPR 484.98 billion in the nine months of last fiscal year.
G. BALANCE OF PAYMENT POSITION
The country’s BOP position is in deficit in the first nine months of FY 2018/19 by NPR 64.68 billion, mainly due to huge deficit seen in current account by NPR 204.43 billion. During the corresponding period in last year, BOP was at deficit by NPR 14.60 billion only, whereas the current account was at deficit by NPR 172.67 billion. In the review period, capital transfer and FDI in Nepal amounted to Rs. 12.48 billion and Rs. 7.10 billion respectively. In the same period of the previous year, capital transfer and FDI amounted to Rs.13.15 billion and Rs.14.41 billion respectively.
The workers’ remittance growth rate is subject to change in terms of US Dollar and Nepalese Currency based on exchange rate of NPR with US Dollar. Hence, the workers’ remittance growth in terms of US Dollar and NPR has been presented below:
Remittance in Dollar Terms
In US Dollar terms, the nine months’ data of FY 2018/19 shows that worker’s remittance growth has witnessed an increment of 9.48% to reach $5,733.40 million compared to 9.63% growth in 2017/18.
Remittance in NPR terms
On the other hand, in NPR terms, the workers’ remittance increased by 20.88% to NPR 653.19 billion during nine months in FY 2018/19 compared to a growth of 5.56% during the same period in FY 2017/18.
As per the data of Department of Foreign Employment, the number of Nepalese workers (Institutional and Individual-new and legalized) migrated for foreign employment decreased 39.30 percent in the review period. It had decreased 6.8 percent in the same period of the previous year. Moreover, the number of Nepalese workers (Renew entry) migrated for foreign employment increased 4.6 percent in the review period. It had decreased 3.10 percent in the same period of the previous year.