Trade deficit continuous to widen: NRB

Trade deficit continuous to widen: NRB
Nepalbiznews.com, 11-Jun-2007

Due to continuous rise in imports against export, Nepal's trade deficit continues to widen, as it crossed Rs 70 billion during the first nine months of the current fiscal year 2006-07, states a recent data of Nepal Rastra Bank (NRB).

According to the macroeconomic situation report released by NRB on Sunday, total exports fell by 2.9 per cent in the first nine months, while imports registered a growth of 7.4 per cent. Total exports in the corresponding period in the previous year had risen by 9.1 per cent and a 21 per cent rise was recorded on imports.

While exports to India declined by 2.3 per cent in 2006-07 as against a significant increase of 15.4 per cent in the same period of 2005-06, exports to other countries fell by 4.2 per cent in comparison to a decline of 2.6 per cent in the preceding year.

The responsible factors for the dismal performance of the export sector included the unfriendly investment climate, worsening security situation, load shedding and the Terai bandh, among others.

The decline in exports to India was ascribed to the decline in exports of polyester yarn, cattle-feed, plastic utensils, G.I. pipes and readymade garments. Likewise, the decline in exports to other countries was due to the decline in the export of readymade garments, pashmina, woollen carpets, and handicrafts and tanned skin.

On the other hand, total imports from India increased by 9.5 per cent in the review period compared to a higher growth of 26.4 per cent in the corresponding period last year. Similarly, imports from other countries registered a rise of four per cent compared to a growth of 13.4 per cent a year earlier.

The rise in total imports during the period was attributed to the rise in imports of vehicles and spare parts, petroleum products, cold rolled sheet in coil, electrical equipment and cement, among others, from India as well as a rise in imports of crude palm oil, computer parts, chemical fertilizer, zinc ingot and medicine, among others, from other countries.

On the external front, the overall balance of payments (BoP) posted a surplus of Rs 10.79 billion in the first nine months of 2006-07. In the corresponding period of 2005-06, the BoP surplus was significant at Rs 17.15 billion.

Of this BoP surplus, the current account surplus was Rs 6.85 billion and the remaining Rs 3.94 billion emanated from the capital and financial account.

In the government budgetary operations, the total expenditure, on a cash basis, increased by 13.3 per cent to Rs 68.68 billion. Of the total government expenditure, recurrent expenditure increased by 12.7 per cent to Rs 47.76 billion, while the capital expenditure rose by 25 per cent to Rs 11.67 billion.

Increase in the allowance of government employees, expenses on the management of Maoist's army, re-establishment of the police posts accounted for the acceleration of recurrent expenditure in the review period, while a frequent Terai unrest and absence of elected representatives in local bodies accounted for deceleration in capital expenditure.

During the review period, total revenue grew by 22.2 per cent to Rs 56.65 billion compared to a growth of a mere 0.1 per cent in the previous year. Revenue collection grew on the account of adjustment in customs and excise rates, improvement in customs valuation, increased tax compliance, a rise in corporate income tax and value added tax as well as an increase in some non-tax revenue.

In the review period, the government incurred a cash budget surplus of Rs 2.50 billion in contrast to a deficit of Rs 5.99 billion in the corresponding period last year. In the review period, the government mobilised Rs 12.41 billion through borrowing, consisting domestic borrowing of Rs 10.03 billion and external borrowing of Rs 2.38 billion.

As capital expenditure did not increase as expected, the government recorded a cash reserve of Rs 16.78 billion with the NRB in the review period.

As a result of higher cash surplus with the NRB and domestic debt repayment of Rs. 3.03 billion, the net domestic financing of the government budget stood at a negative of Rs 9.78 billion in the review period.