This macroeconomic report is prepared based on ten 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-May 2019 declined by 1.70% to close at 1,315.45 points, compared to 1,338.17 points in the same period last year. However, the market capitalization of NEPSE has increased from NPR 1,570.27 billion in Mid-May 2018 to NPR 1,632.75 billion in Mid-May 2019.
Moreover, the ratio of market capitalization of NEPSE to GDP as at Mid-May 2019 has also dropped down to 47.13% compared to 51.81% 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-May 2019 has reached a year-high of 6.12%, 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 4.53% only.
The base rate of commercial banks has hit the new year-low of 9.59% in Mid-May, 2019 compared to 10.32% a year ago. This has set the weighted average lending rate at 12.23%. On the other hand, the weighted average deposit rate stands at 6.67%. Such rates were 12.32% and 6.61% respectively in the corresponding month of the previous year.
C. INFLATION RATE
As reported by NRB, the consumer price inflation which was 4.10% a year ago noticeably inclined to 5.30% in Mid-May 2019, mainly due to rise in the price of food and beverage as well as non-food and service group, which contributed to an incline 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-May 2019) and inflation rate of 5.30%, the real interest via Fisher equation is 1.37% only.
D. DEPOSIT AND LENDING GROWTH
Deposit Growth: The deposits of BFI’s as at Mid-May 2019 increased by 11.36% to NPR 3,158.98 billion, compared to NPR 2,836.65 billion in Mid-July 2018. The growth during the same period last year was 10.45%. The share of demand, saving and fixed deposits in total deposits stood at 8.70 percent, 32.80 percent and 47.80 percent respectively in Mid-May 2019. Such shares were 8.60 percent, 35.0 percent and 45.20 percent respectively a year ago. And the share of institutional deposits in total deposit of BFIs stood at 45.70 percent in Mid-May 2019. Such share was 44.10 percent a year ago.
Credit Growth: The credit disbursement of BFI’s as at Mid-May 2019 increased to NPR 2,850.73 billion by 17.66%, compared to NPR 2,422.78 billion in Mid-July 2018. The growth during the same period last year was 17.49%. Of the total outstanding credit of BFIs in Mid-May 2019, 64.2 percent is against the collateral of land and building and 13.8 percent against the collateral of current assets (such as agricultural and non-agricultural products). Such ratios were 61.3 percent and 15 percent respectively a year ago.
In the review period, term loan extended by BFIs increased 26.60 percent, overdraft increased 10.50 percent, trust receipt (import) loan increased 15.20 percent, demand and working capital loan increased 22.5 percent, real estate loan (including residential personal home loan) increased 9.80 percent, margin nature loan increased 5 percent and hire purchase loan increased 7.50 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 17.66% with the deposit growth rate of 11.36%, 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 102.15 billion liquidity through open market operations in the review period. Rs. 107.34 billion liquidity was injected in the corresponding period of the previous year through the same instrument. Moreover, NRB injected net liquidity of NPR 292.08 billion through the net purchase of USD 2.57 billion from foreign exchange market. Net liquidity of NPR 360.48 billion was injected through the net purchase of USD 3.48 billion in the corresponding period of the previous year. BFIs have also utilized standing liquidity facility (SLF) of Rs. 14.65 billion in the review period. Such facility utilized in the corresponding period of the previous year was Rs. 38.33 billion.
F. FISCAL SITUATION
The budget deficit of the Government of Nepal (GoN) recorded to NPR 0.44 billion in ten months of FY 2018/19 from the deficit of NPR 138.23 billion in the corresponding period of the previous year. Of the total revenue budget of NPR 831.32 billion, 78.03% has been outturned in the ten months of FY 2018/19. In contrast, only 51.53% of the expenditure budget of NPR 1,315.16 billion has been attained in ten months of current fiscal year.
In comparison to ten months of FY 2017/18, the expenditure of federal government (based on banking transactions) decreased by 6.86% to reach at NPR 677.68 billion. On the other hand, the revenue of federal government witnessed a growth of 14.69% compared to corresponding period of the last fiscal year. The government revenue for ten months in this fiscal year stood at NPR 648.67 billion compared to NPR 565.59 billion in ten months of last fiscal year.
G. BALANCE OF PAYMENT POSITION
The country’s BOP position is in deficit in the ten months of FY 2018/19 by NPR 68.20 billion, mainly due to huge deficit seen in current account by NPR 221.40 billion. During the corresponding period in last year, BOP was at deficit by NPR 18.93 billion only, whereas the current account was at deficit by NPR 192.05 billion. In the review period, capital transfer and FDI in Nepal amounted to Rs. 13.48 billion and Rs. 9.47 billion respectively. In the same period of the previous year, capital transfer and FDI amounted to Rs.14.15 billion and Rs.15.51 billion respectively.
The workers’ remittance growth rate is subject to differ 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 ten months’ data of FY 2018/19 shows that worker’s remittance growth has witnessed an increment of 9.25% to reach $6,402.47 million compared to 10.34% growth in 2017/18.
Remittance in NPR terms
On the other hand, in NPR terms, the workers’ remittance increased by 19.55% to NPR 725.30 billion during ten months in FY 2018/19 compared to a growth of 7.00% during the same period in FY 2017/18.
The net transfer receipt increased 19.4 percent to Rs.826.20 billion in the review period. Such receipt had decreased 0.1 percent in the same period of the previous year. 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 38.60 percent in the review period. It had decreased 6 percent in the same period of the previous year. Moreover, the number of Nepalese workers (Renew entry) migrated for foreign employment increased 5.8 percent in the review period. It had decreased 2.20 percent in the same period of the previous year.