Macroeconomic Update February 2015

Chandan Sapkota
Asian Development Bank
Nepal Resident Mission

Press briefing, 27 February 2015

The views expressed in this document are those of the author and do not necessarily reflect the
views and policies of the Asian Development Bank, or its Board of Governors, or the
governments they represent.

Presentation Outline
Macroeconomic Update
Mid-year Overview

Real Sector
Fiscal Sector
Monetary Sector

External Sector
Issue Focus: Quarterly National Accounts of Nepal

Macroeconomic Update

Mid-year FY2015 Overview 1

Late and subnormal monsoon

Political uncertainty
Reported deceleration of remittance inflows
Large gap between investment commitment &
actual inflows

Budget utilization lower than mid-year FY2014

12.6% capital budget utilization rate, lower
than last years 13.5%
High bunching of capital spending expected
Robust revenue performance
Increasing budget surplus

Real sector scenario

Fiscal sector scenario

Mid-year FY2015 Overview 2

Moderating food prices but still at high level
Lower fuel prices lowering pressures on
overall inflation
Lower deposit growth and higher credit growth
Negative real deposit interest rate
Lower excess liquidity
Volatile short-term interest rates

Merchandise exports dropped by 1.4%

Oil import bill decreased
Non-oil import bill increased
Overall merchandise imports increased
Recorded workers remittance inflows
decelerated, despite increase in migrant
workers
Current account and balance of payments
surplus dropped

Monetary sector scenario

External sector scenario

Real Sector
Contributions to GDP growth (percentage points)
6

Sub-sectoral growth (% change)

5.2

4.6

4.3

3.8

3.5

3
2
1
0
FY2010

FY2011

FY2012

Agriculture
Construction
Wholesale and retail trade
Other services

FY2013R

FY2014P

Manufacturing
Other industry
Real estate renting and business activities
GDP growth (basic prices)

Domestic capital investment commitment (NRs

billion)

300

254

250
183

200
150

120
90

100
50

84

65

39

38

0
FY2010

FY2011

Energy
Tourism
Total

FY2012

FY2013

FY2014 Mid-year Mid-year Mid-year

FY2013 FY2014 FY2015

Manufacturing
Agriculture

Service
Mineral

Financial intermediation
Manufacturing
Construction
Real estate, renting and business
Mining and quarrying
Community, social and personal
Agriculture and forestry
Electricty, gas and water
Fishing
Health and social work
Public administration and defence
Education
Hotels and restaurants
Transport, storage and
Wholesale and retail trade

1.8
1.9

2.9
3.0
3.7
4.7
4.7
4.8
4.9
5.5
5.7
6.0
7.1
7.5
8.8

45
40
35
30
25
20
15
10
5
0

FDI commitment and actual inflows (NRs billion)

39.4

20.1
14.6
9.7

FY2011

FY2012

FY2013

Service
Manufacturing
Agriculture
Total FDI commitment

FY2014

Mid-year Mid-year Mid-year

FY2013 FY2014 FY2015

Energy
Tourism
Mineral
Actual FDI inflows

10

FY2015 Growth Outlook

GDP growth estimated between 4.0% and
5.0% for FY2015

6
5.2
5

5.0

4.6
4.0

4
3.5
3

0
FY2012

FY2013R

FY2014P

FY2015f_s1

FY2015f_s2

NRM forecast as of Feb 2015

Agriculture

Industry

Services

GDP growth (basic prices)

Fiscal Sector
Mid-year budget utilization (% of total allocation)

Mid-year expenditure (NRs billion)

180
156.1

161.9

40

140

35

130.1
123.5

30

36.8
30.9

30.2

26.2

25

100

23.2
18.5

20

20
-20

13.5 12.6

15

60
11.5

Total

Recurrent
Mid-year FY2014

14.7

14.5

Capital

10
5

Financing

0
Total

Mid-year FY2015

Capital expenditure (% of GDP)

23.7

5.4

Mid-year FY2014

Assuming 80% and

75% capital budget
utilization,

5
4.3

4.0

3.3

3
2
1

450
400
350
300
250
200
150
100
50
0

0
FY2012

FY2013R

FY2014P

FY2015BE

FY2015f

Capital

Financing

Mid-year FY2015

FY2014 revenue target and mid-year mobilization

(NRs billion)

Customs
FY2011

Recurrent

VAT

Excise

Mid-year FY2015 actual

Income

Total tax
Revenue

FY2015 target

Total
revenue

Need for Higher Capital Investment

Suppressed economic growth requires a boost to aggregate demand
Initially, private investment continent upon public capital investment
Higher quantity and quality of capital investment

Boosts economic performance by accelerating recovery & establishing more

sustainable growth patterns
Generates aggregate demand quickly
Enhances productivity growth
Encourages technological innovation
Spurs private-sector investment by increasing returns

Higher quantity: Close the infrastructure deficit

Higher quality: Productivity-enhancing investment (infrastructure +
human capital)
Monetary policy: Relatively less effective
Fiscal policy: More effective; transmission mechanism direct and less
lags; Stabilization measures (short-term) & structural changes (longterm)
(Michael Spence. 20 Feb 2014. Why Public Investment?. Project Syndicate)

Monetary Sector 1
14
12
10
8
6
4
2
0

16
14
12
10
8
6
4
2
0

Y-o-Y inflation

FY2013

FY2014

FY2015

14

Y-o-Y food inflation

Y-o-Y non-food inflation

12
10
8
6
4
2
0

FY2013

FY2014

FY2015

FY2013

FY2014

Contribution to Inflation (percentage points)

Inflation estimated between 7.0% and
8.0% for FY2015

12
10

9.6

9.9

9.6

9.1
8.3

8.0

7.0

6
4
2
0
FY2010

FY2011

FY2012

FY2013

FY2014

FY2015f_s1

FY2015f_s2

NRM forecast as of Feb 2015

Food and beverage

Non-food and services

Nepal-CPI

FY2015

Monetary Sector 2
40

Growth of deposits (% change)

30

Change in lending to construction and real

estate (NRs billion)

Growth of credit (% change)

30

30

25

20

20

20

15

10

10

10
5

0
-10

FY2014

Mid-year
FY2014

Mid-year
FY2015

Commerical banks

Development banks

Finance companies

Total deposit

0
FY2014

Mid-year
FY2014

Mid-year
FY2015

Commerical banks

Development banks

Finance companies

Total credit

-5

FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 Mid-year Mid-year
FY2014 FY2015

-10
-15

Construction

Real estate

Monetary Sector 3
Interbank and 91-day Treasury bill rate (%)
1.2
1.0
0.8
0.6
0.4
0.2

0.0

Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul

Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul

Interbank rate

91-day treasury bills rate

FY2015

FY2014

Weighted average rates of commercial banks

Mid-year stock market performance

14

1200

12

1000

10

800

600

400

200

0
Aug

Sep

Oct

Nov Dec

FY2015 Deposit

Jan

Feb Mar Apr May

Jun

FY2015 Lending

Jul

FY2012

FY2013

NEPSE index (closing)

FY2014

Mid-year
FY2014

Mid-year
FY2015

Market capitalization (NRs. billion)

External Sector
600
500
400

Growth rate of workers'

remittances dropped to
5.0% from 17.9% in
mid-Jan 2015. But, the
number of migrant
workers increased by
20.4%, up from 12.5%
over the same period.

5
4

300

200

100

110
105
100
95
90
85
80
75
70
65
60

1-Jan-11
11-Mar-11
19-May-11
27-Jul-11
4-Oct-11
12-Dec-11
19-Feb-12
28-Apr-12
6-Jul-12
13-Sep-12
21-Nov-12
29-Jan-13
8-Apr-13
16-Jun-13
23-Aug-13
31-Oct-13
8-Jan-14
18-Mar-14
26-May-14
3-Aug-14
11-Oct-14
19-Dec-14

Daily nominal exchange rate (NRs per $)

6
Remittance inflows ($ billion)

Number of migrant workers (000)

Labor migration and remittance inflows

FY2010 FY2011 FY2012 FY2013 FY2014 Mid-year Mid-year

FY2014 FY2015
Number of migrants workers
Workers' remittances

Balance of payments ($ billion)

8
6

Growth rate of workers' remittances

dropped to 5.0% from 17.9% in midJan 2014

Current account surplus

dropped to $139.1 million

Exports growth dropped marginally by

1.4%

Oil import bill decreased

by 4.6%

2
0
Export (fob)

-2

Import (cif) Merchandise

trade
balance

Services
balance

Income
balance

Transfer
balance

Current
account
balance

Capital
account
balance

Financial
account
balance

Balance of
payments

Oil import

Workers'
remittances

-4

-6
-8

Merchandise trade deficit further widened

despite lower oil import bill
Imports increased despite a fall in oil import bill

FY2014

Mid-year FY2014

Mid-year FY2015

Issue Focus: Quarterly National Accounts of Nepal

Quarterly National Accounts 1

Growth rate of seasonally adjusted and seasonally unadjusted QGDP
20
15
10
5
0
-5

Q1

Q2

Q3

FY2011

Q4

Q1

Q2

Q3

FY2012

Q4

Q1

Q2

Q3

FY2013

-10
-15
-20
Seasonally adjusted

Seasonally unadjusted

Short-term fluctuation monitoring and analysis

Timelier picture of the economy
Essential for immediate corrective policy actions

Q4

Q1

Q2

FY2014

Quarterly National Accounts 2

ADB assisted CBS in
Quarterization of past GDP data series
Benchmarking
Seasonality analysis
CBS published QGDP compilation methodology and QGDP of key
sectors for the first time in 2012.
QGDP should be
Timely
Coherent
Accurate
Comprehensive
Reasonably detailed
Available QGDP data: Q1FY2011 to Q2FY2014
Publication of QGDP data should be continued to facilitate better policy
analysis, dialogues and decision making.

THANK YOU!
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