Budgetary deficit widens, foreign trade declines: NRB

By A Staff Reporter

Kathmandu, Feb. 5: The government expenses rose, resource mobilisation slowed down, budgetary deficit widened and the foreign trade declined during the first five months of the current fiscal year (2001/02). The rate of inflation, however, remained modest at 2.9 per cent and the foreign exchange holdings of the banking system increased by 0.5 per cent, Nepal Rastra Bank (NRB) said.

Domestic credit of the banking sector grew by a slower rate of 3.8 per cent (Rs. 7149.3 million) in the review period, as against a growth of 6.0 per cent (Rs. 4904.2 million) during the same period last year. This is due mainly to a slow down in credit flow to the private sector and a decline in claims on government enterprises. The flow of bank credit to the private sector grew by 4.1 per cent (Rs. 5176.9 million) only during the review period as against an increase of 6.3 per cent (Rs. 6943.7 million) during the same period last year. This deceleration is attributed to the unfavourable investment environment and slow down in both exports and imports.

On the fiscal front, total government cash expenditure reached Rs. 23718.8 million during the review period registering a growth of 9.8 per cent as against an increase of 23.2 per cent during the same period last year. Of the total government expenditure, regular expenditure increased by 14.6 per cent to Rs. 17868.0 million and freeze expenditure by 50.4 per cent to Rs. 1486.4 million, whereas development expenditure declined by 13.1 per cent to Rs. 4364.4 million during the review period. The late release of government expenditure as a consequence of delay in budget approval coupled with the slackness seen in development activities as a result of law and order problem explain the decline in development expenditure, the NRB said.

Resources mobilisation increased by 6.2 per cent to Rs. 18501.4 million in the review period as against a growth of 16.9 per cent during the same period last year. Revenue collection, the major resource of financing the budget, stood at Rs. 16804.1 million marking a sharply decelerated growth of 7.1 per cent of compared to the growth of 15.1 per cent during the same period last year. The deceleration in revenue collection is attributed to a decline in imports, sluggish industrial production situation, downtrend in tourism sector and a slow down in overall economic activities. Slowdown in revenue collection resulted in a higher budgetary deficit of Rs. 5217.4 million this year compared to a deficit of Rs. 4180.9 million last year. The government, in addition to mobilising foreign cash loans worth Rs. 1924.2 million, overdrew Rs. 3282.9 million from Nepal Rastra Bank to meet the resources gap.

The National Urban Consumer Price Index on point to point basis, recorded a rise of 2.9 per cent during the review period compared to an increase of 3.2 per cent during the same period last year. Of the overall price index price index of food and beverages group increased by 4.1 per cent in the review period in contrast to a decline of 1.2 per cent during the same period in the preceding year. Despite a decline in the price of rice and rice products a sharp rise in the prices of vegetables and fruits, oil and ghee as well as spices is attributed to the rise in the prices of food and beverages group. The price of non-food and services group increased by 1.8 per cent only during the review period as against a growth of 8.5 per cent during the same period last year. The decline in the price of housing explains for such a show price rise in non-food and services group. Regionwise, the price indices of Kathmandu valley, Hills and Terai increased by 1.7 per cent. 2.9 per cent and 3.7 per cent respectively.

On the external front, exports registered a decline of 8.2 per cent to Rs. 22591.8 million during the review period in contrast to a growth of 33.1 per cent during the same period last year. During the review period, the growth rate of exports to India decelerated to 25.4 per cent from 46.0 per cent last year while that to the third countries declined by 36.3 per cent in absolute amount in contrast to an increase of 23.9 per cent during the same period last year. Exports of jewellery to third countries increased whereas that of pashmina, pulses, readymade garments and woolen carpet as well as tanned skin exhibited a significant decline, the NRB said.

During the review period, imports too registered a decline of 6.5 per cent to Rs. 43512.0 million in contrast to a growth of 9.9 per cent during the same period last year. The import of animals, cement, electrical equipments, medicine, petroleum products, tobacco, and tyre and tube from India and petroleum products, agricultural tools, medical equipment, electrical equipment, crude oil, medicine, polythene granuals, copper wire and sheet, paper as well as silver from third countries increased compared to that during the same period last year.

During the review period, although exports declined at a slightly faster rate than imports, trade deficit narrowed down by 4.6 per cent to Rs. 20920.2 million owing to the larger base of imports than that of exports. In the previous year, trade deficit had declined by 8.0 per cent. The export/import ratio which was 52.9 per cent in the previous year came down to 51.9 per cent in the review period, according to the NRB.

Based on the available balance of payments statistics for the first three months of the current fiscal year, the balance of payments remained negative by Rs. 813.6 million. During the review period current account deficit widened sharply as a result of a sharp decline in net services receipts, despite encouraging trend of private transfer receipts.

During the review period, foreign exchange holdings of the banking system increased marginally by 45 per cent over the previous year and stood at Rs. 104339.1 million at mid-December 2001. This is mainly attributed to valuation gain resulting from exchange rate changes. Of the total reserve, 75.3 per cent was accounted for by convertible currencies and 24.7 per cent non-convertible currency.

In the share market, market capitalisation of the companies listed in the stock exchange decreased to Rs. 40.6 billion at mid-December 2001 from Rs. 42.6 billion in the previous month. Likewise, NEPSE share price index decreased from 300.2 in the previous month to 284.5 at mid-December 2001.

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