Highest BoP deficit after 2010-11

January 18, 2018

The Himalayan Times, 18 Jan 2018 

The country’s balance of payments (BoP) situation faced deficit of Rs 9.27 billion in the fifth month of the current fiscal — the highest after fiscal 2010-11.

The deficit in the fifth month of this fiscal is the highest after Rs 23.53 billion and Rs 14.79 billion that was recorded in the eighth month of fiscal 2009-10 and ninth month of fiscal 2010-11, respectively.

The country had obtained rapid credit facility (RCF) from the International Monetary Fund in fiscal 2009-10 to handle the BoP crisis and also curbed the import of some products, including gold. However, after the BoP crisis of fiscal 2009-10, the country has not faced BoP deficit of that magnitude.

Till the first four months of the current fiscal, there was marginal surplus in BoP despite the current account deficit widening from the beginning of this fiscal. BoP reflects the inflow and outflow of funds. The country had BoP surplus of Rs 28.78 billion in the corresponding period of the previous fiscal.

Skyrocketing imports, sluggish exports, negative growth of remittances and low disbursement of foreign aid are the reasons for the huge BoP deficit. The country witnessed deficit of Rs 3.9 billion in service trade after a long time. Nepal had been enjoying surplus in service trade since long despite a huge deficit in goods trade, according to Nepal Rastra Bank (NRB).

The country’s current account deficit widened to Rs 41.95 billion in the review period (mid-August to mid-December). Such deficit stood at Rs 25.81 billion in the fourth month. “The underlying drivers of deficit have been the elevated level of imports and the decline in migrant workers’ remittances,” as per the macroeconomic report of the first five months unveiled by NRB today.

According to the central bank’s report, the country imported goods worth Rs 431.49 billion in the first five months, a growth of nearly 13 per cent compared to the corresponding period of previous fiscal. Meanwhile, export grew by 10 per cent compared to the five months of last fiscal to Rs 33.7 billion. Consequently, the country’s trade deficit widened by 13 per cent to Rs 397.79 billion.

Remittance inflow slightly improved in the fifth month as compared to the previous month. However, it was still a negative growth of 0.8 per cent. The country received a total of Rs 285.48 billion in remittance the review period, according to central bank report.

Impact of election expenses contributed the consumer price inflation quickening to 4.2 per cent in mid-December compared to 3.9 per cent of mid-November. However, inflation was still low in Nepal compared to 5.2 per cent in India in mid-December.