Govt expenditure, trade deficit increase: NRB

BY A STAFF REPORTER

Kathmandu, Dec. 7: The first quarter of the current fiscal year 2001-2002 witnessed a deceleration in both narrow and broad money. The government expenditure accelerated mainly due to significant growth in both regular and freeze expenditures. In spite of an increase in revenue collection, resources mobilization remained slow owing to a decline in foreign cash grants, thereby resulting in a wider budgetary deficit.

The rate of inflation on point to point basis remained at 2.2 per cent mainly due to decline in the price of grains and cereal products under the food and beverages group and housing under the non-food and services group.

Quarterly macroeconomic report

On the external front, because of an increase in imports and a decline in exports, trade deficit widened compared to that of last year.

Foreign Exchange

The foreign exchange holdings of the banking system increased substantially due to a surplus in the balance of payments (BoP) emanating from the growth in net transfer income as well as miscellaneous capital inflow. The resulting foreign exchange reserve was sufficient to cover merchandise import of twelve months. In the money market, treasury bills rate remained at 4.66 per cent whereas the inter-bank rates stood at 4.02 per cent, according to Nepal Rastra Bank (NRB).

The first quarter of the fiscal year 2001-20002, broad money (M2) registered a decelerating growth of 1.2 per cent (Rs 261.2 million) to Rs 216434.8 million compared to a growth of 2.9 per cent. (Rs 5385.3 million) the same period last year.

In spite of slight acceleration in the growth of net domestic assets, decline in net foreign assets explains the deceleration in broad money in the review period. Narrow money (M1) also decelerated to 2.9 per cent (Rs 2003.3 million) during the review period compared to a growth of 4.2 per cent (Rs 2550.6 million) during the same period last year, according to Nepal Rastra Bank press communiqué.

Despite a higher growth of credit flow to the government and government enterprises total domestic credit of the banking sector grew by a slower rate of 3.2 per cent (Rs 6000.6 million) in the review period, as against an increase of 3.8 per cent (6026.6) in the previous year, due mainly to a slowdown in the credit flow to the private sector. The flow of bank credit to the private sector decelerated to 3.1 per cent (3913.0 million) during the review period as against an increase of 4.9 per cent (Rs 5334.9) during the same period last year as a consequence of unfavourable investment and slowdown in exports.

On the fiscal front, total government expenditure reached Rs1454.1 million registering a growth of 26.1 per cent during the review period as against an increase of 10.5 per cent during the review period as against an increase of 10.5 per cent during the same period last year. Of the total government expenditure, regular expenditure increased by 29.8 per cent to Rs 10980 million, freeze expenditure by 45.8 per cent to Rs 1486.4 million and development expenditure increased only by 1.1 per cent to Rs 2074.2 million. The payments of overdue amount for pensions as well as medical care allowances to retired government employees and a substantial increase in the expenditure incurred for internal security are mainly attributed for such a rise in regular expenditure. The late release of the development expenditure as a consequence of delay in budget approval is mainly attributed for such a slow down in the development expenditure.

Resources mobilization in the review period increased by 16.9 per cent to Rs 10883.9 million as against a growth of 18.0 per cent during the same period last year. Revenue collection, the major resource to finance the budget, stood at Rs 10527.5 million marking a 19.2 per cent growth compared to a lower growth of 10.2 per cent in the previous year. However, a sharp decline in foreign cash grants receipts resulted in the lower resource mobilization and the consequential budgetary deficit of Rs 3657.5 million. The government, in addition to mobilizing foreign cash loan worth Rs 1384.0 million, received Rs 21.2 million under the ‘others’ heading of the government account, while the remaining amount of Rs 2252.3 million was overdrawn from Nepal Rastra Bank to meet the resource gap.

The National Urban Consumer Price Index on point–to-point basis, recorded a rise of 2.2 per cent during the review period compared to an increased 2.9 per cent during the same period last year. Of the overall price index, price index of food and beverages group increased by 3.8 per cent in contrast to a decline of 4.6 per cent in the preceding year.

Despite a sharp rise in the prices of sugar and related products, vegetables and fruits, oil, oil and ghee as well as restaurant meals, the declining price of grains and cereals products contributed for such a low price rise of food and beverages group. The price of non- food and services group increased by 0.4 per cent only during the review period as against a growth of 12.7 per cent in the previous year. The decline in the price of housing explains for such a low growth in the price rise of non-food and service group.

Region-wise, the price of Kathmandu valley, Hills and Terai increased by 2.6 per cent, 2.4 per cent and 1.9 per cent respectively.

Foreign Trade

On the external front, exports registered a decline of 0.3 per cent to Rs 13479.3 million during the review period in contrast to a growth of 27.6 per cent during the same period last year.

During the review period, the growth of export to India decelerated to 34.7 per cent from 47.7 per cent in the previous year, while that to the third countries declined by 28.4 per cent as against a growth of 15.0 per cent during the same period last year.

Exports of jewellery and tanned skin to third countries increased whereas that of Pashmina pulses readymade garments and woolen carpet exhibited a significant decline.

During the review period, imports registered a decelerated growth of 3.8 per cent to Rs 26506.3 million as against a growth of 5.2 per cent during the same period last year. The import of cement, electrical equipment, medicine, petroleum products, tobacco and pesticides from India and petroleum products, chemical fertilizer, agricultural tools, medical equipment, electrical equipment, crude oil, medicine, polythene granuales , copper wire and sheet paper as well as silver from third countries increased compared to that in the previous year.

As imports increased and exports declined, the trade deficit widened by 8.4 per cent to Rs 13027.0 million during the review period in contrast to a decline of 12.2 per cent during the same period in the previous year. The export/import ratio, which was 52.9 per cent in the previous year, came down to 50.9 per cent in the review period.

Based on the available BoP statistics for the first month of the fiscal year 2001-2002, the BoP remained favorable by Rs 1,155.4 million. During the review period in spite of a decline in net service income, current account deficit narrowed down by 27.3 per cent to Rs 893.2 million due mainly to an increase in transfer receipts compared to that in the previous year. Besides, a significant inflow of miscellaneous capital items helped the BoP to remain positive.

During the review period, foreign exchange holdings of the banking system increased by 4.7 per cent and stood at Rs 104871.9 million at mid-October 2001. Of the reserve 76.0 per cent was accounted by convertible currencies and 24 per cent by non- convertible currency.

In the share market capitalisation of the companies listed in the stock exchange increased to Rs 39.33 billion at mid-October 2001 from Rs 37.05 billion in the previous month. Likewise NEPSE share price index increased from 265.2 in the previous month to 281.2 at mid October this year, NRB says.