Foreign Exchange Reserves Increase, Economic Activity Needs Improvement

Nepal Rastra Bank has released its monthly Economic and Financial Situation Report for Bhadra, indicating that the country's foreign exchange reserves have reached an all-time high of NPR 2.152 trillion. The report highlights that this continuous record growth in foreign reserves over the past 15 months has strengthened the country’s balance of payments and current account savings.

Foreign Exchange Reserves and Import Coverage

In the first two months of the fiscal year 2081/82, Nepal's foreign exchange reserves are sufficient to cover 16.8 months of goods imports and 13.7 months of goods and services imports. Although the central bank had set a minimum target to cover seven months, the current reserves have exceeded this goal.

Growth in Remittance Inflows

Remittance inflows for Shrawan and Bhadra reached NPR 263.14 billion, marking a 15.2% increase compared to the same period last year. This inflow has contributed significantly to the buildup of foreign exchange reserves.

Need for Improvement in Economic Activity

While foreign exchange reserves remain robust, economic activity in Nepal has not met expectations. According to economists, remittance growth has strengthened the external sector, but declining private sector confidence has hindered investment expansion and economic growth. There is a need for the government to boost private sector confidence and reinforce policy reforms to stimulate economic activities.

Inflation and Banking Sector Update

Consumer inflation for Bhadra was limited to 3.85%, with the food and beverage category showing a 5.03% increase and the non-food category at 3.19%. Additionally, deposits in banks and financial institutions rose by NPR 35 billion, while credit disbursed to the private sector increased by NPR 73.39 billion.

Despite strong foreign exchange reserves, the lack of improvement in economic activities and slow progress in government finances poses a challenge for the country. In such a situation, policymakers and the private sector need to collaborate and take concrete steps to enhance the country's economic momentum.