Signs Of Distress
Remittance income growth has declined and trade deficit widened
By A CORRESPONDENT
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Highway route : Bandh affects the lifeline |
There are some signs of distress in the economy. The growth of income from remittance – the pillar of national GDP – has declined substantially while the trade deficit has widened uncontrollably.
According to a report by Nepal Rastra Bank (NRB) about the state of economy in the first nine months of the current fiscal year, the rate of growth of remittance income has plummeted substantially.
The remittance earning increased by 8.4 percent in the first nine months of the current fiscal year – compared with 48.9 percent growth it had witnessed during the same period previous fiscal year.
In recent years, remittance earnings have had immense impact on national economy contributing up to 20 percent of GDP. The NRB report states that the country received Rs 72.39 billion as remittance income during this period.
The central bank says that the decline in growth rate is due to absence of substantial increase in the number of workers going for overseas and stagnant wage overseas. Furthermore, the appreciation of Nepali Rupees compared with US dollar, too, has affected the remittance earnings. While a year ago, 1 US dollar was equivalent to Rs 72; now it has come down to just over Rs 65.
Meanwhile, the report says that because of sustained increase in imports, trade deficit has soared to over Rs 70 billion during the first nine months of the current fiscal year 2006-07.
The report released early this week states that total exports fell by 2.9 percent in the first nine months, while imports registered a growth of 7.4 percent. Total exports in the corresponding period in the previous year had risen by 9.1 percent and a 21 percent rise was recorded on imports.
While exports to India declined by 2.3 percent in 2006-07 as against a significant increase of 15.4 percent in the same period of 2005-06, exports to other countries fell by 4.2 percent in comparison to a decline of 2.6 percent in the preceding year. The responsible factors for the dismal performance of the export sector included the unfriendly investment climate, worsening security situation, load shedding and the Terai bandh, among others.
The report adds that the decline in exports to India was ascribed to the decline in exports of polyester yarn, cattle-feed, plastic utensils, G.I. pipes and readymade garments. Likewise, the decline in exports to other countries was due to the decline in the export of readymade garments, pashmina, woollen carpets, and handicrafts and tanned skin.
On the other hand, total imports from India increased by 9.5 percent in the review period compared to a higher growth of 26.4 percent in the corresponding period last year. Similarly, imports from other countries registered a rise of four percent compared to a growth of 13.4 percent a year earlier. The rise in total imports during the period was attributed to the rise in imports of vehicles and spare parts, petroleum products, cold rolled sheet in coil, electrical equipment and cement, among others, from India as well as a rise in imports of crude palm oil, computer parts, chemical fertilizer, zinc ingot and medicine, among others, from other countries.
The overall balance of payments (BoP) posted a surplus of Rs 10.79 billion in the first nine months of 2006-07. In the corresponding period of 2005-06, the BoP surplus was significant at Rs 17.15 billion. In the government budgetary operations, the total expenditure, on a cash basis, increased by 13.3 percent to Rs 68.68 billion. During the review period, total revenue grew by 22.2 percent to Rs 56.65 billion compared to a growth of a mere 0.1 percent in the previous year. Revenue collection grew on the account of adjustment in customs and excise rates, improvement in customs valuation, increased tax compliance, a rise in corporate income tax and value added tax as well as an increase in some non-tax revenue. In the review period, the government incurred a cash budget surplus of Rs 2.50 billion in contrast to a deficit of Rs 5.99 billion in the corresponding period last year.
Meanwhile, the total foreign exchange reserve has increased by 5.2 percent to reach Rs 173.67 billion. The NRB used $570 million to purchase Rs 40.97 billion of Indian currency during this period.
