This blog post is adapted from Macroeconomic Update, August 2014, Vol.2, No.2. Here are earlier blog posts on real sector, fiscal sector, monetary sector, and FY2015 growth and inflation outlook.
I. Exports
The weak currency, which improved price competitiveness, modest pickup in production following the improvements in political situation, and strong external demand increased exports. In US dollar terms, merchandise exports (free on board [fob]) rebounded with a growth of 5.1%, up from a decline of 2.9% in FY2013. The country exported merchandise goods worth $1.03 billion, up from $981 million in FY2013. Overall, merchandise exports increased to 5.2% of GDP in FY2014 from 5.1% of GDP in FY2013.
The top five exports to India were zinc sheet ($63.1 million), textiles (59 million), polyster yarn ($52.6 million), juice ($45.2 million), and jute goods ($43.9 million). Meanwhile, the top five exports to other countries were woolen carpet ($75.2 million), readymade garments ($43.1 million), pashmina ($21.3 million), pulses ($20.9 million), and tanned skin ($11.4 million) (Figure 35).
II. Imports
Merchandise imports (cost, insurance freight [cif]) in dollar terms grew by 13.9%, up from 10.9% growth rate in FY2013. Of the total imports of $7.1 billion, 19.1% was oil imports. In US dollar terms, this is equivalent to $1.4 billion, higher than the value of the country’s total merchandise exports. The high quantity of oil imported is mainly attributed to the rising demand for petroleum products as a result of the persistent and long hours of power cuts and the weak currency. Overall, merchandise imports increased to 36.1% of GDP in FY2014, up from 32.3% of GDP in FY2013.
The top imports were petroleum products, iron and steel, transport and vehicle parts, machinery and parts, and electronic and electrical equipment. The five top imports from India were petroleum products ($1,340.7 billion), vehicle and spare parts ($336.5 million), steel billets ($251.9 million), other machinery and parts ($158.9 million), and medicine ($154.3 million). The top imports from other countries were gold ($253.1 million), crude soybean oil ($150.9 million), telecommunication equipment ($143.1 million), silver ($129.8 million), and other machinery and parts ($111 million) (Figure 36).
III. Remittances
The large increase in the number of migrant workers and the incentives to remit more money back home as a result of the weak currency have boosted workers’ remittance inflows, which reached a record 28.2% of GDP in FY2014, equivalent to $5.5 billion (Figure 37). In US$ terms, remittance inflows grew by 11.9%, up from 11.3% growth in FY2013.[1] This follows a 16.4% growth of migrant workers (those who obtained permits form the Department of Foreign Employment).
A total of 527,814 migrants legally left to work overseas in FY2014 (daily average of 1,446), up from 453,543 in FY2013 (daily average of 1,243). Malaysia, Qatar, Saudi Arabia, and UAE have remained the top employment destinations for low to semi-skilled Nepalese migrant workers (Figure 38). They together accounted for 92% of total migrant workers in FY2014. As a share of total migrants, Malaysia’s share increased from 34.6% in FY2013 to 40.6% in FY2014, and Qatar’s share increased from 20% to 24.4% over the same period.
IV. Balance of Payments
The country’s external situation strengthened in FY2014 with the balance of payment surplus reaching $1.3 billion (6.6% of GDP). Though this is an impressive increase from the $786.5 million (4.1% of GDP) surplus in FY2013, it is still lower than the $1.6 billion (8.6% of GDP) surplus in FY2012 (Figure 39). The large merchandise trade deficit, which reached 30.9% of GDP, was partially[2] offset by workers’ remittances, which reached 28.2% of GDP, and export resulting in a current account surplus of $917.2 million (4.7% of GDP), up from 3.4% of GDP in FY2013. While capital transfers increased by 47.6%, financial transfers decreased by 24.9% as a result of the 68.5% fall in foreign direct investment, which saw a sharp decline from $103.6 million in FY2013 to a mere $32.6 million in FY2014. Gross foreign exchange reserves increased from $6.1 billion in FY2013 to $6.8 billion FY2014, sufficient to cover 10 months of imports of goods and non-factor services.
V. Exchange Rate
The rate of depreciation of the Nepalese rupee has subsided in the latter months of FY2014 closely following the currency movement of the Indian rupee, but it still remains weak (Figure 40). Overall, the Nepalese rupee depreciated by 19.9% between 15 July 2011 and 25 July 2012 and a further 6.7% between 15 July 2012 and 15 July 2013. It depreciated by 0.9% between 15 July 2013 and 15 July 2014. The weak currency increased exports, the import bill, remittance inflows, and losses of Nepal Oil Corporation.
[1] In local currency, the growth rate was 25% in FY2014, up from 20.9% growth in FY2013.
[2] Overall, the net goods, services and income balance was a negative 28.1% of GDP, which was offset by net transfers equivalent to 32.7% of GDP, resulting in current account surplus equivalent to 4.7% of GDP.
