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VOL. 27, NO. 21, February 01, 2007 (Magh 18 2064 B.S.)
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Soaring Deficits
Gradually, the soaring budget and trade deficits are hurting the national economy
By A CORRESPONDENT
Amid escalating imports and stagnant exports even as its expenditures have soared, the government's trade and budget deficits have hit the roof.
As per the report by the Nepal Rastra Bank (NRB), assessing the economic situation in the first five months of the current fiscal year 2007/08, the high government expenditure has pushed the budget to Rs 9.81 billion deficit. It was at the surplus of Rs 4.95 billion in the same period last year.
"Of the sources of deficit financing, the government mobilized Rs 5.08 billion through the fresh issuance of securities and Rs 2.57 billion from central bank in the form of overdraft," states the report released by the central bank.
The amount raised through the issuance of securities is 24.8 percent of the budgeted ceiling of Rs 20.5 billion for 2007-08. "Of the total budget deficit, remaining Rs 2.24 billion was financed through external borrowing," the report states.
The revenue mobilization has also grown by 21 percent to Rs 32.36 billion compared to a rise of 13 percent in the same period last year. In comparison to mid-July 2007, the Nepali currency appreciated by 2.53 percent vis-à-vis US dollar in mid-December 2007, states the report. It had appreciated by 3.71 percent in the same period last year.
Based on the monetary statistics, the overall balance of payments (BoP), which was at deficit for last couple of months, returned to a surplus of Rs 24.1 million. Similarly, total imports grew by 1.5 percent compared to a growth of 10 percent in the last year. While imports from India rose by 2.4 percent in the review period, imports from other countries were at the same level of 9.2 percent. But total exports fell by 6.9 percent as against a rise of 0.2 percent in the corresponding period last year. Of the total exports, export to India plummeted by 9.3 percent compared to a marginal growth of 0.9 percent in the same period of 2006/07.
Exports to other countries also posted a decline of 1.4 percent. The decline in the exports to India was primarily attributed to the decrease in the exports of vegetable ghee, toothpaste, chemicals, textiles and wire. Similarly, exports to other countries also dropped arising from the lower exports of woolen carpet, pashmina, readymade garments, Nepali paper and paper products and tanned skin.
The net purchase of $464.8 million from the commercial banks resulted in the injection of liquidity of Rs 29.76 billion in the review period. Last year, such net purchase was $394.5 million leading to the liquidity injection of Rs 28.9 billion.
The purchase of Indian currency by selling $550 million amounted to Rs 35.08 billion in the first five months. During the same period in the previous year, the purchase of Indian currency had amounted to $320 million, an equivalent of Rs 23.39 billion.
A higher level of payment by NOC to IOC in the review period compared to the previous year and a widening current account deficit with India resulted in the rise of the purchase of IC in the review period.
For managing short-term liquidity, net liquidity amounting to Rs 6.81 billion was absorbed through reverse repo auction of Rs 5.57 billion and outright sale auction of Rs 1.24 billion, states the NRB report.
The year on year inflation moderated to 5.7 per cent in mid-December 2007 from 7.3 percent a year ago. The moderation was on account of the base-effect of hike in prices of petroleum products in March 2006 and the nominal appreciation of the Nepali currency against the US dollar. In mid-December, 2007, the year-on-year core inflation moderated to 4.7 percent from 6.7 percent a year ago.
