IMF estimated that Nepal’s economy will grow at 7.1% in FY 2018/19, following a growth of 6.5% in FY 2017/18. The service sector was the biggest contributor to real GDP growth for FY 2018/19, followed by agriculture, and wholesale and retail trade.
The headline Y-o-Y inflation rose by 0.2% in April 2019, compared to 4.2% in March 2019 driven by an increase in food and beverage inflation. Vegetable and spices contributed the highest to this increase. Non-food inflation, on the other hand, remained constant over March and April.
Fiscal Developments
In ten months of FY 2018/19, the overall fiscal balance suffered a deficit of NPR 12 billion (USD 107 million) which accounts to an approximate 0.33% of the Gross Domestic Product (GDP). The target deficit in FY 2018/19 was set at 8% of the GDP. Spending expanded rapidly compared to the revenue, consequently raising the public debt to 30.4% of GDP in FY 2018/19. This is an increase of 4% in comparison to FY 2017/18.
External Sector Developments
The current account deficit stands at USD 1.8 billion in the first ten months of FY 2018/19. The trade deficit was USD 8.6 Billion compared to USD 7.7 billion in the same period in FY 2017/18. Remittance inflows remained at USD 643 million in April 2019 compared to 623 million in May 2018. The sector has been showing healthy growth, however, the rate of remittance inflows has decreased. Moreover, the number of Nepali workers traveling for foreign employment has declined over the past few months. The percent has decreased by 30% in the month of April itself.
Monetary Sector Developments
Banks’ average deposit and lending rates have stabilized in FY 2018/19. Interbank rates have come up to the middle of the interest rate corridor. Private sector credit, on the other hand, grew by 21.9 % in April (y/y) reaching about 85% of the GDP and the Real Effective Exchange Rate (REER) depreciated by 3.1% in March (y/y). Central bank reserves (including gold and SDR holdings) stood at USD 8.4 billion in April, covering about six months of prospective imports of goods and services.
