Budget deficit just got double, says NRB report

The budget deficit in the first four months of this fiscal year has doubled compared to the same period last fiscal year, according to Nepal Rastra Bank (NRB).

"In the first four months of 2009-10, the deficit stood at Rs 3.40 billion compared to Rs 1.26 billion in the corresponding period the previous year," said the current macroeconomic situation, published by NRB today.

The deficit is attributed to total government spending that increased by 36.5 per cent to Rs 50.61 billion compared to an increase of only 7.3 per cent in the same period last fiscal. "The high growth of recurrent as well as capital expenditure accounted for such an increase in the government expenditure," it added.

Administrative expenses and development expenses both went up in comparison to the same period. "Recurrent expenditure increased by 50.6 per cent to Rs 35.85 billion against a decrease of 2.5 per cent in the same period last fiscal year, whereas capital expenditure increased by 46.5 per cent to Rs 4.07 billion in contrast to a decline of 17.5 per cent in the corresponding period last fiscal year," said the central bank's report.

However, principal repayment expenditure declined by 52.6 per cent to Rs 2.64 billion against an increase of 26.7 per cent in the same period last fiscal year. The government was successful in revenue mobilisation as it grew by 41.6 per cent to Rs.46.70 billion compared to an increase of 35.4 per cent in the corresponding period of the previous fiscal. Firm commitment to controlling revenue leakage and tax administration reforms contributed to such an increase in the revenue mobilization, said the central bank.

But the external sector exhibited a dismal picture in the first four months as exports plummeted by 23.7 per cent in contrast to an upsurge of 38.1 per cent in the same period in the last fiscal year.

According to the central banks' report, exports to India fell considerably arising from the decline in the exports of readymade garments, zinc sheet, shoes and sandals, thread and marble slab, among others.

Exports to other countries decreased because of the decline in the export of pulses, woollen carpets, readymade garments, tanned hides and herbs.

Total imports rose by 27.8 per cent compared to a growth of 41.1 per cent in the corresponding period of the previous fiscal year.

Similarly, the overall Balance of Payment (BoP) recorded a deficit of Rs 20.49 billion in contrast to a surplus of Rs 11.86 billion in the same period of the previous year The current account also registered a deficit of Rs 13.94 billion in the first four months as against a surplus of Rs 8.38 billion in the same period last fiscal year.

The report has highlighted a number of factors like expansion in trade deficit by 48.9 per cent, under transfers, decline of grants by 10.2 per cent, and decline of remittances inflow - that has gone up by just 6.6 per cent compared with its significant growth of 65.9 per cent in the same period last fiscal year.

Recently, NRB governor Bijaya Nath Bhattarai said NRB is worried over the BoP and current account deficit.

Gross forex reserves stood at Rs 248.89 bilion in mid November 2009 -- a drop by 11.1 per cent compared to mid-July 2009. In US dollar terms, gross forex reserves fell 6.2 per cent to $3.36bn last November.