First the good news: Nepal Rastra Bank (NRB) says Nepal’s foreign exchange reserves have increased from $9.54 billion in June 2022 to $10.5 billion in February 2023.
This is enough to pay for 9 months and 12 days of imports.
This is a result of a spike in remittances and a ban on the import of luxury items after reserves fell last year.
The NRB’s Current Macroeconomic and Financial Situation Report of Nepal last week noted that imports went down by almost 20% during the first seven months of the current fiscal year. Remittance inflow is still Nepal’s economic lifeline and it increased by 16.4% in the past seven months compared to the same period last year as foreign employment permits increased by 57%.
Nepal’s balance of payments has also reached a surplus of Rs132 billion, compared to a loss of about Rs274 billion last year, which could show that the economy is on the mend.
But this is the only silver lining as dark clouds gather on the global economy as bank collapses in US spread to Europe, and within Nepal there is a looming threat of mass defaults and depositors cheated by micro-finance lenders and cooperatives.
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The bad news is that government revenue has plummeted, going down by almost 15% till February as compared to the previous fiscal year. Paradoxically, political uncertainty has meant that the government has been unable to spend much of its allocated development budget.
Revenue has gone down to Rs622 billion and the government incurred a shortfall of Rs150 billion in expenditure this fiscal year. This is in sharp contrast to a consistent increase in government revenue over the past decades.
High interest rates have discouraged investment, real estate transactions are half of last year, and the stock market is in a slump. Decreased imports have had a knock-on effect on economic activity.