Nepal's balance of payment deficit shrinks

REPUBLICA

KATHMANDU, Sept 8: Nepal has managed to dramatically bring down the balance of payment (BoP) deficit to Rs 2.62 billion, but a huge current account deficit continued to trouble the country on the back of a massive trade deficit that widened by more than Rs 100 billion in Fiscal Year 2009/10 alone.

The country´s exports declined by 9.7 percent to Rs 61.13 billion during the year as instability, insecurity and lack of initiative by the government to address labor and power outage problems took a toll on industrial output and drove away investment.

The annual macroeconomic report that Nepal Rastra Bank released Tuesday shows that exports to third countries declined by more than Rs 5.5 billion to 21 billion, while exports to India declined to Rs 40.11 billion from the Rs 41 billion achieved a year ago.

Mainly commodities like woolen carpet, readymade garments, pashmina, pulses and herbs failed to retain their markets during the year.

Imports on the other hand, expanded by more than a third and totaled Rs 378.80 billion in Fiscal Year 2009/10.

Of the total imports, import from India grew by more than Rs 50 billion to Rs 217 billion. Imports from the rest of the world also increased by more than Rs 38 billion to Rs 160 billion during the year.

The central bank said import of petroleum products, vehicles and spare parts, MS billet, gold, telecommunication equipment and steel rod and sheet, among others played a huge role to drive up the imports.

As a result, the total trade deficit in Fiscal Year 2009/10 jumped to Rs 317.67 billion, whereas it was Rs 216.77 billion a year earlier.

Likewise, Nepal received pension worth Rs 25.85 billion during the year. Although workers´ remittances grew at a lower rate of 10.5 percent, the country received a whopping Rs 231.73 billion from Nepalis employed abroad.

“Foreign direct investment too grew by Rs. 2.85 billion during the year,” reads the report, adding that the BoP deficit narrowed down sharply to Rs 2.62 billion in Fiscal Year 2009/10. Gross foreign exchange reserves dropped by 7 percent to Rs 266.57 billion in mid-July 2010, from Rs 286.54 billion of mid-July 2009.

Average consumer price inflation meanwhile moderated to 10.5 percent in 2009/10, compared to 13.2 percent of 2008/09. The central bank has attributed this to a low increment of 4.7 percent in the prices of non-food items and services.

However, food and beverages prices rose by 15.4 percent, making livelihood difficult for low-income groups.

Of the food items, prices of sugar and sugar related products increased by a whopping 45.6 percent during the year. Prices of spices, pulses, meat, fish and eggs too went up by 27.3 percent, 26.1 percent and 20.6 percent respectively.

The price of vegetables and fruits also grew by 19.9 percent. Restaurant meals, beverages, milk and milk products also became expensive by 16.8 percent, 14.6 percent and 11.9 percent respectively during the year.

The annual average salary and wage rate, meanwhile, rose by 17.2 percent during the year - higher than the previous year. Average salary as well as wage rate went up by 20.2 percent and 16.3 percent respectively during the year, the report said.