Saturday, September 1, 2012

Review of Nepali economy in fiscal year 2011-2012

The annual macroeconomic update published by the central bank is one of the few government documents I eagerly wait for each year. Finally, the macroeconomic update for 2011-2012 is out.  The state of some of the most important macroeconomic variables are briefly discussed below.


  • GDP growth rate: NRB uses the same figures provided by the CBS, i.e. projection of 4.63 percent GDP. For more on these, see an earlier blog post here.

Merchandise trade

  • Total exports was Rs 74.26 billion, total imports was Rs 461.67 billion and total trade deficit was Rs 387.74 billion, an increase by 15.4 percent, 16.5 percent and 16.7 percent respective when compared to the previous year.
  • This was largely helped by depreciation of Nepali currency against the dollar. As a share of GDP, exports, imports and trade deficit were 4.77 percent, 29.63 percent, and 27.86 percent of GDP (share of import and trade deficit was higher than the previous year).
  • Import of petroleum products was Rs 92 billion, a solid 23 percent increase from the previous year.

Balance of payments

  • BoP surplus reached Rs 127.70 billion (US$1.57 billion) compared to Rs 2.18 billion (US$34.7 billion) in the previous year. The increase in BoP surplus in local currency was 5758 percent while that in dollar was 362 percent!
  • Current account surplus was Rs 75.98 billion (US$ 909 million)compared to a deficit of Rs 12.94 billion (US$177 million) in the previous year. The improvement was due to substantial rise in growth of remittances and favorable services account.
  • Remittances reached Rs 359.55 billion (US$4.41 billion). Net services balance was Rs 14.06 billion.
  • FDI was Rs 9.20 billion (Rs 6.44 billion the previous year).

Forex reserves

  • Forex reserves increased to Rs 439.46 billion (US$4.96 billion), up from Rs 272.15 billion (US$3.84 billion) the previous year.
  • Reserves in convertible foreign exchange was US$3.87 billion. Reserves in inconvertible foreign exchange was IRs 60.39 billion.
  • Annual average exchange rate in 2011-12 was US$1=NPR 81.02, up from NPR 72.27 in 2010/11.
  • NRB purchased Indian currency equivalent to Rs 213.95 billion by selling US$2.66 billion in the Indian money market. It was US$2.74 billion (INR equivalent to Rs 198.15 billion) the previous year.


  • Inflow of tourists via air was 595262, with Indian tourists accounting for 28.32 percent of it. Indian tourists increased by 29 percent in y-o-y basis.
  • Total tourists via air and land was around 750000.


  • The DoI approved 227 joint venture projects with FDI commitment of Rs 7.14 billion. In 2010-2011, it was 209 projects with FDI commitment of Rs 10.05 billion.
  • Largest number of JV approved were from China, followed by India, USA and South Korea.

Foreign employment

  • The DoFE granted employment permits to 384665 Nepali migrant workers, an increase by 8.4 percent from last year.
  • About 27.5 percent went to Qatar, 25.6 percent to Malaysia, 20.9 percent to Saudi Arab, 14.1 percent to UAE, 6.4 percent to Kuwait and 5.5 percent to other employment destination.


  • Inflation was 8.3 percent (provisional figure). It will be much higher when the actual figures are computed. The current market prices of goods and services do not justify the low figure. Even the central bank figures show that between Jun/Jul 2010-11 and Jun-Jul 2010-11, inflation was 11.5 percent.


  • Domestic financing of budget deficit amounted to Rs 36.41 billion, which is about 2.3 percent of GDP.
  • Total domestic debt was Rs 198.12 billion.

Revenue and expenditure

  • Government expenditure increased by 11.9 percent to Rs 310.75 billion (up from Rs 277.62 billion the previous year). Recurrent expenditure was Rs 231.79 billion and capital expenditure was Rs 40.83 billion.
  • Revenue was Rs 244.15 billion, up by 22.2 percent. VAT constituted 29.6 percent of total revenue, customs 17.8 percent, income tax 21.4 percent, excise 12.5 percent, and non-tax revenue was 15.4 percent.

Monetary situation

  • Money supply (M2) increased by 22.7 percent against 12.3 percent increase in the previous year. Significant rise in foreign assets (net increase by 59.1 percent compared to 1 percent increase in the previous year) of monetary sector was the main reason behind this increase.
  • Domestic credit increased by 8 percent, which is a slowdown from 14.6 percent increase in the previous year. Reasons: high revenue mobilization but low public expenditure plus low growth of claims on private sector (thanks to sectoral credit limit in unproductive sectors).
  • Deposit mobilization increased by 22.9 percent (Rs 188.59 billion) compared to 12.9 percent (Rs 94.13 billion) the previous year. Reasons: high remittances and modest increase in export earnings.
  • Loans and advances of BFIs increased by 13.2 percent (Rs 112.78 billion) compared to 15.1 percent (Rs 111.91 billion) the previous year. Reason: merger of some finance companies with commercial and development banks.
  • As of mid-July 2012, there are 32 commercial banks, 88 development banks, 70 finance companies, 24 microfinance development banks, 16 NRB licensed cooperatives, 36 NRB licensed NGOs, and 25 insurance companies. In just a year, the number of finance companies decreased from 79 to 70.