Macroeconomic highlights as of mid-October 2022

Inflation in Nepal increased from 4.24% in mid-October of 2021 to 8.50% in the same period in 2022, which is an increase of 4.26 percentage points.

Similarly, last year in October, a liter of petrol cost NPR 133, while diesel cost 116 NPR. However, a year later, the price of petrol per liter increased to NPR 181 and diesel became costlier at NPR 178, an increase of 36% and 53% respectively. However, Nepal Oil Corporation (NOC) refuses to reduce the fuel prices even though they are buying at a cheaper rate from India. NOC issued a statement saying that the price of petroleum products is fluctuating and they are operating at loss for a long time. 

A central bank’s primary goal is to maintain low and stable inflation by conducting monetary policy. As per the monetary policy released by the Nepal Rastra Bank (central bank of Nepal) in July 2022, the inflation target for FY 2022/23 was set at 7.0%, and the economic growth target of 8.0%. However, inflation has consecutively recorded over 8.0% in the following months of the release of monetary policy, showing that the target of achieving inflation below 7.0% has not been met yet.

Balance of payment (BoP) remained at a deficit of around NPR. 34.28 billion in the review period. However, in the same period, last year BoP remained at a deficit of NPR 76.13 billion. The reason for the decline in the deficit was the government’s ban on the import of luxurious products. The government had to put import restrictions in place in part due to depleting foreign currency reserves. However, the government decided to lift the 7-month-old ban on the import of luxury goods to meet the condition of the international monetary fund (IMF) ahead of the formation of the new government.

The total trade deficit decreased by 13.1% to NPR 359.18 billion and the export-import ratio also decreased to 10.4% during the first three months of FY 2022/23. Deposits at Banks and Financial Institutions increased by 0.4 percent while credit to the private sector saw an increase of 1.3 percent. On a year-on-year basis, deposits increased by 8.2 percent, and private-sector credit increased by 6.4 percent. 

Major Key Highlights:

  • Consumer price index (CPI) inflation remained at 8.50% on a year-on-year basis.
  • Inflows of remittance increased by 16.8% to NPR 281.05 billion from mid-August to mid-October 2022.
  • Balance of payments (BoP) recorded a surplus of NPR 12.43 billion till mid-October 2022
  • The Nepse index stood at 1858.3 compared to 2657 in mid-October 2021.
  • The gross foreign exchange reserves increased by 2.5% to NPR 1246.22 billion in the review period.
  • The merchandise trade decreased by 35.7% to NPR 41.82 billion during the first three months of the fiscal year (FY) 2022/23


The consumer price index (CPI) is the most well-known indicator of inflation. The NRB published three months’ current macroeconomics and financial situation of Nepal in November 2022. According to that report, the year-on-year consumer price inflation was 8.50% in mid of October 2022 of FY 2022/23 compared to 4.24 percent a year ago. While the inflation in mid-September 2022 was 8.64%. Food and beverages inflation remained at 8.05%. Under this category, the price inflation of the restaurant and hotel category increased by 15.91%, alcoholic drinks by 10.24%, fruits by 12.06%, milk products, and eggs by 9.45%, and tobacco products by 8.44%. The inflation of non-food and service was reported at 8.85%. Under this category, transportation sub-category inflation increased by 21.15%, furnishing, and household equipment by 9.45%, education by 8.11%, and housing utilities by 7.68%.

Over the past few years, the inflation rate in Nepal has gradually increased. The pandemic-induced closure of markets adversely impacting the supply chain, the Russia-Ukraine war, and the weakening of the Nepali currency against the US dollar are some of the prominent causes. According to  NRB  the appreciation of the US dollar means a higher cost of imports and as Nepal is an import-based economy, it is fueling inflation further. Besides these reasons, general elections also usually play a role to fuel inflation due to the increase in expenditures in large amounts by various political groups. When the election dates are announced, monitoring of the market weakens due to political parties starting their campaigns and economic activities tend to elevate. 

The Asian Development Bank estimated that the inflation in Nepal to fall marginally to 6.3% in 2023. This is based upon factors including tightened monetary policy such as high-interest rates, increased cash reserve ratio (CRR), and decline in the maturity time of statutory liquidity ratio (SLR) by NRB, as well as subdued oil prices in the international oil market and inflation gradually declining in India.


Increase in Remittance inflows by 16.8% reaching NPR 281.05 billion:

Inflows of remittance increased by 16.8% to reach NPR 281.05 billion from mid-August to mid-October 2022 however, compared to the same period of the previous year, it decreased by 7.1%. An increase in remittance sent home by migrant workers as well as the gradual revival of the tourism sector of the country is a positive sign for the Nepalese economy. 

One of the major reasons for the increment in remittances is the increase in the number of Nepali workers taking approval for foreign employment by 123.1% to 147,932 and migrating abroad for foreign labor. In the meantime, the renewed entry approval for foreign employment increased by 66.2 % to 57, 861. This is 219.7% more than the same period of the previous year. 

Balance of Payments

Balance of payments (BOP) measures all of the international monetary transactions of a particular country  within a certain period. Current BOP remained at a deficit of around NPR 34.28 billion till mid-October 2022 and the capital transfer increased by 34.8% to NPR 2.59 billion. In addition, the net foreign direct investment (FDI) was recorded at NPR 79.6 million. Balance of payments (BoP) recorded a surplus of NPR 12.43 billion till mid-October of 2022. 

Fiscal Situation (Government Revenue and Expenditure)

The Ministry of Finance oversees all government expenditures as well as tracks the revenue collection. Total expenditure for the three months of FY 2022/23 reported was NPR 278.17 billion. The capital expenditure, recurrent expenditure, and financial expenditure amounted to NPR 223.75 billion, NPR 19.68 billion, and NPR 34.73 billion respectively. The revenue mobilization stood at NPR 208.58 billion as well as tax revenue at NPR 189.38 billion and non-tax revenue at NPR 19.20 billion. In mid-October 2022, the Government of Nepal (GoN) maintained a balance at various accounts with NRB of NPR 195.62 billion. 

Capital Market

During the review period, the Nepse index stood at 1858.3 compared to 2657 in mid-October 2021. The capitalization of the stock market recorded NPR 2672.79 billion in mid-October compared to NPR 3719.72 billion in mid-October 2021. The listed companies’ numbers reached 242 where 146 were Banks and financial institutions (BFIs) and insurance companies, 19 were manufacturing, 6 were investment companies, 5 hotels, 59 were hydropower companies, 4 were trading, and 3 other companies in mid-October 2022. In the stock market, 68.6% of the shares were of BFIs and insurance companies, hydropower companies represented 10.5%, investment companies had 6.4%, processing and manufacturing companies had 4.4%, hotels, trading companies, and other companies had 1.7%, 0.4%, 8.1% respectively. The paid-up value of 6.82 shares listed in NEPSE in mid-October stood at NPR 672.69 billion. The worth of NPR 80.78 billion was listed in the last three months of 2022/23. 

Foreign exchange reserves and exchange rates fluctuations

The gross foreign exchange reserves increased by 2.5% to NPR 1246.22 billion in the review period. In terms of US dollars, the gross foreign exchange reserves decreased by 0.6% to 9.48 billion from 9.54 billion in mid-October 2021. Reserves of BFIs (except NRB) decreased by 9.3% to NPR 144.62 billion from NPR 159.41 in mid-October 2022 in comparison to mid-July 2022. However, the total reservation of Indian currency remained at 23.8% till mid-October 2022. The Reservation of foreign exchange is sufficient to cover merchandise imports of 9.6 months. Having said that, the ratio of reserves-to-imports, reserves-to-GDP, and reserves-to-M2 remained at 69.5%, 25.7%, and 22.5 respectively. Nepalese currency visa-a-vis the USD depreciated 3.01% in mid-October 2022 from 6.64% in mid-July 2022. The reason behind it is the devaluation of Nepalese currency resulting in the US dollar gaining value making imports for the country. 

Trade (Imports and Exports)

The merchandise trade decreased by 35.7% to NPR 41.82 billion during the three months of 2022/23. The exports to India and China decreased by 45% and 35% respectively however, exports to other countries increased by 5%. The exports of palm oil, oil cakes, jute goods, and silverware, among others, decreased, however, woolen carpets, garments, and tea among others increased during the period. In these three months of 2022/23, imports also decreased by 16.2% to NPR 401 billion, which was  63.7% higher than a year ago. The import from India and China, and other countries have decreased by 14.8%, 16.7%, and 19.2% respectively. Imports of silver, telecommunication equipment, bars, and coils, among others, decreased, however, petroleum products, chemical fertilizers, medicine, and sponge iron among others increased in the review period. According to the report of NRB, the total trade deficit decreased by 13.1% to NPR 359.18 billion and the export-import ratio also decreased to 10.4% during the three months of 2022/23. 


The macroeconomic and financial situation for the review period witnessed surging inflation, weakening of Nepali currency, depleting foreign reserves, and import surging viz-a-vis export. The Russia-Ukraine war caused a significant impact on the global economy which resulted in further upward pressures on the prices of petroleum products and a substantial increase in food and edible oil prices. Russia is the major supplier of oil in the global market and the economic sanctions induced upon them  drastically reduced the supply of oil. It made  imports of petroleum products more expensive for Nepal resulting in the price of other products increasing. The devaluation of Nepalese currency also played an important role in the rising inflation rate because the dollar became stronger, and the federal reserve (central bank of the US) raised the interest rate.Although the appreciation of the value of the US dollar has had a positive impact on the inflow of remittance to Nepal. 

Furthermore, the tourism sector has begun to witness a gradual rebound which could be a positive sign for the economic prospects in 2023. However, persistent inflation and high-interest rates could dampen the growth prospects, along with strengthening the American dollar could result in higher import bills. However, increasing the inflow of remittances contributed by the growing number of labor migrants traveling abroad for work could cushion the negative impacts.


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