The post Nepal External Sector Deteriorates Following Rising Trade Deficit appeared first on Nepali Sansar.
]]>Despite a steady economic growth rate over the last three years, some of Nepal’s macroeconomic indicators show that all is not well with the country’s external sector.
According to Nepal Rastra Bank’s (NRB) recent update, the country’s Balance of Payments (BoP) has fallen by NPR 67.4 billion in FY 2018-19 compared to the surplus of NPR 960 million earned in FY 2017-18.
Alarmingly, Nepal registered a BoP deficit throughout the last fiscal year owing to the increasing trade deficit, along with no earnings in terms of foreign currency.
Nepal recorded a rise in merchandise imports by 13.9 percent to NPR 1,418.54 billion in 2018-19.
On the other hand, the country’s exports increased by a smaller margin of 19.4 percent from NPR 97.11 billion. This imbalance between imports and exports resulted in an increased trade deficit of NPR 1,321.43 billion during 2018-19.
On account of this, the foreign exchange reserve (forex) fell to NPR 1,038.92 billion in mid-July, from NPR 1,102 in the same period during FY 2017-18.
However, Nepal portrayed a steady remittance growth in FY 2018-19, which increased by 16.5 percent to NPR 879.27 billion in comparison to 8.6 percent in 2017-18. But it is worth noting that there is a decline in the number of Nepali migrant workers in recent years, which is likely to result in a decline in the remittances earned over the years to come.
Economists question whether the government will be able to maintain the economic growth rate, which is largely based on consumption.
They suggest that the government should create a favorable environment to attract private sector investment and foreign direct investment (FDI) to shift Nepal’s remittance and consumption-based growth to an investment and productivity-driven one.
Speaking about FDI, Nepal’s FDI Inflow decreased to NPR 13.07 billion in 2018-19 from NPR 17.51 billion in 2017-18.
The private sector investment also took a hit due to shortage of funding in the banking sector. Interest rates of banks increased, making it increasingly difficult for business firms to draw funds.
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]]>The post World Bank Predicts a 5.9% Growth Rate for Nepal in 2019 appeared first on Nepali Sansar.
]]>However, WB’s growth projection is lower than Nepal’s economic growth rate in FY 2017-18.
In its flagship report ‘Global Economic Prospects’ released on January 08, 2019, the global authority observed that the country’s economic growth will slow down to 5.9 percent in the current fiscal as Nepal’s strong post-earthquake momentum is expected to be moderate.
According to the report, the reconstruction activity will be backed by infrastructure investment and consumption.
The report also projects a consistent 6 percent for the next three fiscal years.
Comparatively, WB said that Nepal achieved an estimated economic growth rate of 6.3 percent.
“Less favorable monsoons led to weakness in agricultural activity, but this was offset by a recovery in remittances and robust industrial sector growth, particularly for manufacturing activities,” said the WB report while speaking further about the country’s economic progress.
However, it is important to note that WB’s growth projection of 5.9 percent for the current fiscal is lower than the International Monetary Fund’s (IMF) December 2018-forecast of 6.5 percent.
Likewise, the Asian Development Bank (ADB) in its macroeconomic update in September 2018 predicted that the economic growth in FY 2018-19 will be likely 5.5 percent.
The Global Economic Projects report has projected the growth rate for South Asia to increase to 7.1 percent in 2019 from 6.9 percent in 2018.
The report states that over the medium term, robust domestic demand will continue to drive growth which is expected to bring about the estimated 7.1 percent.
“However, risks to the outlook are tilted down. On the domestic side, vulnerabilities are being exacerbated by fiscal slippages and rising inflation, and the possibility of delays in needed structural reforms to address weaknesses in the balance sheets of banks and non-financial corporate,” read the report.
As per WB’s report, key external risks including a further deterioration in current accounts and faster than expected tightening of global financing conditions.
The global authority is keeping a close watch on Nepal’s progress.
While there are several factors that influence a country’s growth, the World Bank continues to monitor and rank countries based on such factors including ‘ease of doing business’ among others.
Nepal was ranked 158th in WB’s Ease of Doing Business report.
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]]>The post Key Stakeholders Urge NRB To Expand Monetary Plan appeared first on Nepali Sansar.
]]>Stakeholders say that the country will need more than Rs 500 billion in the next fiscal year to meet the targeted economic growth rate of 8 percent.
Taking into perspective the targeted growth rate, they said that the suggested expansionary monetary policy will keep the money flow in the market and curb interest rates. Both of these aspects are important factors for achieving the targeted growth rate and keeping inflation within the targeted 6.5 percent.
“Amid lack of adequate investment funds, it will be tough for the government to achieve the targeted economic growth rate in 2018-19. In such a situation, the central bank should draft a monetary policy that is as expansionary as possible even if it adds to the inflationary pressure to some extent,” says Gyanendra Dhungana, President of Nepal Bankers Association (NBA).
Dhungana further asked the central bank to consider getting rid of the credit-to-core Capital Plus Deposit (CCD) ratio limitation in the banking sector through the enaction of the monetary policy explaining that liquidity could be restrained even by maintaining the Cash Reserve Ratio (CRR) and Statutory Liquid Ratio (SLR).
What Key Stakeholders Said
Private sector representatives present at the meeting encouraged NRB to address various lapses of the budget that have eaten away at the business sector through monetary policy.
“Among others, the government’s policy to scrap the VAT rebate system on different essential goods and the inability of the budget to ensure stability in interest rates in the banking sector are discouraging. The monetary policy should address these bottlenecks of doing business in Nepal,” says Shekhar Golchha, Senior Vice-President of the Federation of Nepalese Chambers of Commerce and Industry.
The Vice-President of Nepal Chamber of Commerce (NCC) Kamalesh Kumar Agrawal also expressed his views on the plan saying that the monetary policy should also facilitate production and supply of goods.
Kumar stressed on the need to limit interest rates within the 9 percent limit on loans in the banking sector, redefine productive & non-productive sectors and permit the usage of high-denomination Indian currency in the domestic market.
Speaking to the members, Nara Bahadur Thapa, Executive Director of NRB, said that the monetary policy for FY 2018-19 will focus on:
“The market is already witnessing inflationary pressure and it will likely increase in the next fiscal year. The monetary policy will be prepared by adopting cautious measures to control inflation,” says Thapa.
Addressing the event, NRB Governor Chiranjibi Nepal said that the monetary policy will fuel the budget’s target of achieving the expected economic growth in FY 2018-19 and restricting inflation to 6.5 percent.
“Nepal has witnessed an economic growth rate of over 6 percent for two consecutive years despite political instability and frequent changes in government. As the country now has a stable government and the supply-demand situation is improving, the 8 percent economic growth target in 2018-19 is achievable,” says Chiranjibi.
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