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VOL. 27, NO. 31, April 18, 2008 (Baishakh 06 2065 B.S.)
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NRB REPORT
Deficit Surges
The latest report by the central bank points to soaring deficits and threat of inflation spiraling out of control
By A CORRESPONDENT
The latest report by the central bank has revealed some of the very important issues the government will need to focus on immediately after the election is over.
The report shows how the government will be pressed to make hard decisions after the election to address the protracted economic ills.
The report by the central bank – the Nepal Rastra Bank (NRB) – for the first seven months of the current fiscal year, has shown that budget deficit is increasing.
The high government expenditure due to election and other reasons, the budget has posted Rs 6.18 billion deficit. This is very high when compared to the same period last year when the budget was at the surplus of Rs 1.82 billion.
The saving grace for the government, however, is the handsome revenue mobilization, which has increased by 29 percent to Rs 54.52 billion compared to an increase of 17.9 percent last year.
The financial report states that domestic credit has increased by 12.6 percent in comparison to a growth of 2.3 percent last year. The NRB has injected a net liquidity of Rs 42.16 billion by net purchase of $660.6 million from commercial banks through foreign exchange intervention in the review period. A net liquidity of Rs 37.17 billion had been injected through the net purchase of $510.8 million in the same period last year.
Another disappointing trend has been the decline in exports. Total exports declined by three percent, equal to the decline in the corresponding period of last year. "Of the total exports, export to India fell by 5.5 percent in comparison to a decline of 4.6 per cent in the same period last year," according to the central bank.
Third country exports posted a growth of 2.5 percent in comparison to an increase of 0.7 percent in the same period last year.
On the other hand, total imports rose by 11.9 percent compared to a rise of just 1.6 percent in the
corresponding period last year, states the NRB report.
The year-on-year inflation moderated to 6.4 per cent in mid-February 2008 from eight percent in the corresponding period of the previous year. The minimal pass-through effect of the hike in the prices of petroleum products in October 2007 accounted for the moderation in the overall price index.
"Likewise, the appreciation of the Nepali currency against the US dollar also dampened the inflationary pressure," it states.
But the problem is that the international fuel price has continued to soar. On the top of that, prices of essential food items have increased tremendously across the world in recent months. The next-door neighbor India, too, is witnessing a surge in its inflation rate – which traditionally has immediate effect on Nepal.
Indian currency equivalent to Rs 50.23 billion was purchased through the sale of $790 million in the review period. During the same period last year, a total of Rs 30.49 billion was purchased through the sale of $420 million US dollar.
As the election approaches, the surging inflation and deficit can have a very negative effect in the coming days.
Immediately, after the election, the government will need to focus on ways to address the longstanding problem of fuel price, among others. It cannot afford to continue to postpone its decision to adjust fuel price with the international market level.
