The rate of general price rise crossed 10.5 per cent in mid-October as compared to 8.9 per cent in the corresponding period of the previous year. 

 

“Until and unless the parallel informal economy is taken into consideration in monetary planning, no policies will able to impact price stability,” pointed out senior economist Dr Biswambher Pyakurel. “The informal economy has also been responsible in the surging prices of most products.”

 

The index of food and beverages group increased by 9.1 per cent, whereas non-food and services group increased by 11.8 per cent during the review period. These indices had increased by 9.6 per cent and 8.2 per cent, respectively, in the corresponding period of the previous year.

 

“Increased remittance has put more money in the hands of people, without any increment in productivity which tends to increase the demand for consumer goods, thus, pushing prices up,” said Dr Pyakurel. 

 

However, workers’ remittance has increased by 28.8 per cent, amounting to Rs 97.7 billion in the three months. 

 

The economy, that was seemingly comfortable a few months back, appeared to be slowing down in the first quarter as fiscal expenditure remained insignificant due to the inefficient government.

 

In the first three months of the current fiscal year, the deposit growth rate has slowed down, inflation has grown, trade deficit has widened further causing balance of payments surplus to decline, while budget surplus has surged as government expenditure has shrunk because of prolonged uncertainty due to the adamant government.

 

“Funds allocated for capital expenditure have not been spent and that has not only affected economic activities but has adversely impacted private sector spending as well,” said Dr Pyakurel. In the three months, the government budget remained at a surplus of Rs 10.94 billion, according to a macroeconomic report published by Nepal Rastra Bank.

 

Deposit mobilisation of financial institutions increased by 2.5 per cent, amounting to Rs 24.97 billion, which had grown by more than five per cent in the same period a year back. 

 

Though the liquidity situation has been at a comfortable level for the last one year, the persistent slow deposit growth rate has raised concerns regarding the repetition of another bout of liquidity crisis in the financial system. 

 

On the other hand, increased credit to the private sector might signal increased economic activities. In the period, credit to the private sector increased by 5.8 per cent as compared to a growth of 1.4 per cent last year.

 

Trade deficit has widened as it surged by 40.8 per cent to Rs 115.75 billion as compared to an increase of 7.6 per cent during the same period of the previous year. Merchandise exports went up by 14.9 per cent to Rs 20.73 billion in the first three months of 2012-13, while merchandise imports have increased by 36.1 per cent to Rs 136.48 billion.

 

“Such surge in trade deficit erodes a nation’s economic capacity as most of the income is spent on paying for imports and hardly anything remains for investment,” pointed out economist Dr Pyakurel.