The Nepal Rastra Bank (NRB) has said that the current inflation level of 7.8 percent has added a challenge to the already frail economic condition of the country and is getting difficult to control.
Talking to journalists at a program at the NRB about current macroeconomic situation of the country for first three months of current fiscal year 2005-06, Governor of NRB, Bijay Nath Bhattarai, predicted that inflation might go up further in days to come.
According to the NRB, annual average rate of inflation surged threefold to 7.8 percent in the first quarter of 2005-06 compared to 2.5 percent in the same period of the last year.
Senior officials at NRB said that inflation is going to rise steeply and the current rate is also ‘dangerous’, according to reports. They also urged the government to pay special attention in maintaining fiscal balance by narrowing the mismatch between the available resources and expenditures.
Keshav Acharya, senior economic advisor of the research department of the NRB, said inflation is quite high compared to last year, due to hike in petroleum prices and VAT increment to 13 percent from the earlier 10 percent.
He said that on the fiscal front, the government budget deficit, on the cash basis, declined by 88 percent to Rs 50.3 million in the first quarter of 2005-06 compared to a budget deficit of Rs 419.2 million in the same period of the last year.
According to NRB officials, remittance alone contributed about 12 percent in the last year’s total GDP of Nepal.
According to the NRB report, government expenditure increased by 12.4 percent during the review period in contrast to a decline of 3.1 percent in the same period of last year. Of the total expenditure, Rs 16.61 billion, current expenditure accounted for 73.7 percent (Rs 12.2 billion) while the share of capital expenditure stood at 8.7 percent (Rs 1.4 billion). Loan repayment occupied 3.7 percent (Rs 611 million) and freeze expenditure accounted for 13.9 percent (Rs 2.3 billion) of total expenditure.
However, the balance of payments (BoP) showed a surplus of Rs 1.5 billion as per the monetary statistics of the first quarter of 2005-06 as compared to a deficit of Rs 1.4 billion in the same period of last thanks to the contribution of the remittances.