Weekly Economic Bulletin (10th June to 16th June, 2022)

Fuel prices rise, yet again

As per the latest revised price list sent by the Indian Oil Corporation (IOC), the sole supplier of fuel to the Nepal Oil Corporation (NOC), the price of petrol, diesel and aviation fuel has increased by Rs 6.52, Rs 19.3 and Rs 91.91 per liter respectively.?According to the new price list, petrol, diesel and aviation fuel will now cost Rs 209.28, Rs 202.16 and Rs 147.99 per liter respectively.

Mergers

• Following the last-hour failed merger between Nepal Investment Bank Limited (NIBL) and Himalayan Bank Limited (HBL), NIBL and Mega Bank Nepal Limited (MBNL) on June 10 has signed a Memorandum of Understanding (MoU) to merge. As per the agreement, the merged bank will be named ‘Nepal Investment Mega Bank Limited’ and will have a paid-up capital base of Rs. 34.43 billion.
• In another case of merger, two commercial banks, Global IME Bank and Bank of Kathmandu (BoK), on June 16, inked an initial agreement to merge. As per the agreement, the merged bank will be named Global IME BoK Limited, and with a total capital of Rs.52 billion it will be Nepal’s biggest bank.

Inflation more than doubles!!

Following the largest ever price hike of 8.21 percent last month, the Consumer Price Inflation (CPI) during the one-month period from mid-April to mid-May has hit 7.87 percent, more than double of 3.65 percent of the same period of the last fiscal year.

Nepal slipped 12 places on the budget transparency index in 2021

According to the global report on the open budget survey unveiled by the International Budget Partners (IBP), Nepal fell 12 places on the budget transparency index in 2021, from 65th to 77th position. The slip in position can mainly be attributed to the delay in making major documents public and publishing the country’s annual report late.?

The report published by the international watchdog has also identified weak monitoring by the federal parliament during both the planning and implementation phases of the budget as Nepal’s main hurdle in maintaining budget transparency.

NEPSE mulls over opening secondary market six days a week

As per a NEPSE official, the frontline regulator has started homework to open the secondary market for six days a week (Sunday to Friday) from the current five days.?

After the Government declared two-day weekend on Saturday and Sunday, NEPSE had switched trading to Friday from the original Sunday. With the Government withdrawing the provision that will come into effect from next week, NEPSE is considering continuing the transaction also on Friday, for two and a half hours starting from 11:00 AM.??

Nepali Rupee continues to make record lows against the US dollar

On June 9 Nepali Rupee plunged to a record low against the US dollar with Nepal Rastra Bank (NRB) fixing the exchange rate at Rs 124.68 per dollar.?

After only six days since hitting rock bottom, Nepali Rupee has further depreciated to a fresh low value of Rs 125.08 per dollar on June 15.

The Nepali rupee’s downward spiral is a result of the steady depreciation of the Indian Rupee (INR) to which it is pegged. As the INR has weakened considerably against the US dollar, the Nepali Rupee has also met the same fate.?

The continued depreciation of Nepali Rupee has made imports expensive for the highly import-dependent Himalayan nation, thereby contributing to the high inflationary pressure. Moreover, as we make interest payments and repayment of loan installments in dollars, the depreciation has also increased our debt liability by an estimated Rs. 19.37 billion.?

While we have suffered from expensive imports due to currency depreciation, due to our weak export base we haven’t been able to reap the benefits of cheaper exports that come with the same currency depreciation.

All 7 provinces present their budgets for the next fiscal year 2022-23

All seven provinces on June 15 unveiled their budgets for the next fiscal year 2022-23 beginning mid-July with an emphasis on boosting agricultural production, expanding the social net, and improving infrastructural connectivity.?

The combined budgets of the seven provinces for the next fiscal year amount to Rs305.46 billion, nearly 17 percent higher than the current fiscal year's budget of Rs262 billion.

With a budget of Rs. 70.93 billion Bagmati has the biggest financial outlay of all seven provinces while Karnali has the smallest outlay with a budget of Rs.32.61 billion.

With restriction in official imports, contraband sugar floods the market

Sugar imports from official channels have almost stopped in Nepal after the Government required traders to keep 100 percent margin amount to open letter of credit to import sugar. Imports from official channels have further declined after the largest producer of the sweetener and its second largest exporter, India, also decided to limit sugar exports to 10 million tonnes from June 1.

However, surprisingly there is not a shortage of sugar in the market. On the contrary, reports even indicate a glut in the household sweetener. And the reason? Large volume of illegal imports of sugar from the porous southern border.?

Taking advantage of Nepal’s import restrictions and India’s news sugar export policy, traders in collusion with customs officials, and the police have been smuggling sugar illegally in the country to meet the inelastic demand for the household sweetener. With the supply gap being met by contraband sugar, sugar prices have therefore risen from Rs95 per kg to Rs110 per kg.?

Government to begin fresh negotiations to establish electric vehicle plant

On December 11, 2019, the Investment Board of Nepal (IBN) and Motrex Co Ltd CEO Lee Hyung-Hwan had initiated a project investment agreement to produce vehicles powered by fossil fuels. The South Korean automaker, whose products are shipped to more than 70 countries, had?proposed to manufacture 50,000 units of Hyundai and Kia passenger and commercial vehicles yearly in the Motipur Industrial Area of Butwal, Rupandehi.

However, in light of Nepal’s plan to switch from petrol-powered light vehicles to?electric autos by 2031, the June 6 meeting of the IBN chaired by Prime Minister Sher Bahadur Deuba had approved the decision to renegotiate with Motrex to abandon the earlier proposed plans to manufacture petrol-powered cars and instead establish a plant for electric vehicles (EVs).?

In line with this decision, the IBN is now set to begin fresh negotiations with the South Korean automaker to establish an electrical manufacturing and assembly plant in the country.

Fickle Chinese policy forces importers use the circuitous southern route

Following protests by traders accusing China of imposing an “undeclared blockade” in the northern transit points, visiting Chinese Foreign Minister and State Councillor Wang Yi, On March 25, had stated that trade between the two countries would be eased. Staying true to its word, China had immediately increased the number of containers following Wang’s visit. But not for long and also not by much.

While the Chinese had said 40 containers would be allowed to pass through the Tatopani border point and 28 containers through the Rasuwa border point daily China has not released more than 15 trucks daily through each of the two border points. Fed up by the northern neighbor’s fickleness, which has cost traders billions, almost 80 percent of traders have started importing goods over the sea route, through India, despite it being more expensive and taking an additional 40 days more than the overland northern route.