NRB REPORT
Hanging In There

Despite the restoration of peace, the economy has not been able to take-off

By SANJAYA DHAKAL

Despite the incessant talks of building new Nepal , the economy of the country has not been given adequate concerns in the past eight months.

This is evident in the average performance of the economy shown in the latest report of economic situation released by the central bank.

In its report about the first four months of the current fiscal year, the Nepal Rastra Bank (NRB) has indicated that the foreign trade volume has been discouraging. The exports have decreased by 0.1 percent. Last year, during the same period, exports had grown by 14.5 percent. Last year, total exports to India had grown by 29.4 percent but during the review period, it decreased by 1.1 percent. The central bank states that the continued imposition of 4 percent Special Additional Duty by India on some Nepali export products could have triggered this decline.

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The imports, on the other hand, have increased by 9.9 percent compared to its growth by 21.1 percent in the corresponding period previous year. Of the total foreign trade volume, India continues to occupy over 60 percent share. Total imports from India had increased by 33.8 percent a year ago but in the review period it only increased by 8.8 percent.

The Balance of Payment surplus stands at Rs 80 million. The BoP surplus had stood at Rs 4.35 billion a year ago during same period. However, due to widening trade deficit, the BoP surplus has decreased.

The consumer inflation stands at 7.1 percent – down from 8.5 percent the same period previous year.

The revenue collection has grown by 20.3 percent to reach Rs 21.52 billion – compared to revenue growth of 6.9 percent in the same period previous year. The NRB report states that the expansion of consumption fueled by increasing remittance income, the adjustments in custom duties have worked to increase the revenue collection.

The total foreign grants increased by 97.9 percent to reach Rs 3.31 billion – compared to decrease of 43.4 percent last year. Likewise, the foreign loans have decreased by 22.8 percent in the review period – compared to the increase of 18.5 percent previous year.

Due to increasing revenue collection and favorable situation of foreign grants, the budget surplus stands at Rs 1.76 billion during the review period – compared with the budget deficit of Rs 3.18 previous year.

The remittance inflow grew by 17 percent in the review period to reach Rs 31.67 billion. The total foreign exchange reserve has declined by 0.4 percent to reach Rs 164.45 billion. This decrease is seen due to small appreciation of Nepali currency vis-à-vis US dollar, officials claim. This volume of foreign exchange reserve can sustain goods import of 10.6 months and goods and service import of 8.7 months.

Meanwhile, in terms of readymade garment exports, the year 2006 turned out to be another disappointing year. Over two dozen garment industries shut down after the exports to the United States – largest export market – continued to decline. A large number of workers were laid off. According to the Garment Association of Nepal (GAN), in 2006 garments worth US$ 47.7 million were exported to the US compared to the exports worth US$ 50.7 million in 2005. This year the exports came down by 6 percent. In 2005, the exports had come down by 41 percent.

Notwithstanding the brouhaha over the tourism prospects, the data revealed by the Nepal Tourism Board (NTB) shows that tourist arrival increased marginally by 2.3 percent in the year 2006. The incidents of bandh, strike, extortion and workers’ agitation continue to make the tourism sector uncertain.