The trade deficit of the country during the first 10 months of the fiscal year 2005-06 rose by 25.3 percent compared to the same period during the previous fiscal due to a higher rate of growth in imports against a slower pace of exports.
Nepal had registered a moderate increase of 9.8 percent in trade deficit during the same period in 2004-05.
A report released by the Nepal Rastra Bank about the current macroeconomic situation of the country said that total exports during the review period increased at a slower pace of 4.6 percent, while total imports increased substantially by 17 percent.
Of the total exports, exports to India rose only by 8.7 percent in 2005-06 compared to an encouraging growth of 23.9 percent in the same period of 2004-05. Exports to other countries fell by 3.3 percent in the review period on top of a decline of 15.4 percent in the corresponding period the previous year.
Out of the total, imports from India went up by 22.7 percent during the review period in comparison to a growth of 13.2 percent in the corresponding period of 2004-05. Imports from other countries, on the other hand, rose by 8.8 percent compared to a lower growth of 2.6 percent a year earlier.
Of the total government expenditure, the share of recurrent expenditure, capital expenditure, principal repayments and freeze expenditure remained at 66.6 percent, 15.8 percent, 14.3 percent and 3.5 percent respectively in the review period.
The total government revenue mobilisation declined by 0.2 percent in the review period in contrast to an increase of 12.3 percent in the corresponding period of the previous year. Rebate on various taxes and fees provided by the government during peoples’ movement is mainly responsible for such a decline in revenue mobilisation.
Of the sources of financing the budget deficit, government mobilised additional domestic borrowing of Rs 7.1 billion by issuing treasury bills worth Rs 6.1 billion and development bonds and citizen savings certificates amounting to Rs 1.0 billion.
In the first ten months of 2005/06, NRB injected net liquidity worth Rs 39.36 billion through interventions in the foreign exchange market, according to the NRB report. Open market operation mopped up the net liquidity equivalent to Rs 11.36 billion during the period. As inter-banking transactions deepened, commercial banks made lower utilization of standing liquidity facility (SLF).
The report further said that national income and wage index as at mid-May 2006 grew by 4.8 percent, while inflation shot at 9.1 percent during the period.
“During the period, the indices of salary and wage rate increased by 0.4 percent and 6.5 percent respectively,” says the report. The growth is attributed to rise in wages of all three categories of laborers and salaries of service sector staff. This growth, however, proved nowhere near the rate at which prices grew.
“The general strike, which interrupted the supply of some essential commodities also exerted upward pressure on the price index,” says the report.
Net foreign assets (NFA) recorded a commendable growth, as a result of which broad money grew by 10.8 percent compared to 5.8 percent growth of the corresponding period last year.
In the review period, NFA posted a substantial growth of 19.0 percent (Rs 20.5 billion) compared to a growth of 5.3 percent last year. The growth is due mainly to the higher inflow of workers’ remittances and foreign aid. .