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With the Nepal Rastra Bank (NRB) tightening business refinancing that the central banks arranged for the enterprises affected by the Covid-19 pandemic in 2020, there has been a sharp drop in outstanding refinance facilities. During the first six months of the current fiscal year 2022/23, the central bank has reduced outstanding refinance facilities by more than Rs 100 billion. According to NRB, the outstanding refinance facility as of mid-January of this fiscal year stood at Rs 11.75 billion from as high as Rs 111.96 billion in mid-July 2022. Such a drop in business refinancing occurred after the central bank reduced the scope of providing refinance facilities through the monetary policy 2022/23. As per the monetary policy for the current fiscal year 2022/23, the refinance facility will be continued but will be limited to productive sectors including agriculture, small enterprises, exports, and the sectors still affected by the pandemic. “Such facility will be gradually reduced to the amount available in the refinance fund by mid-July 2024,” reads the monetary policy. NRB adopted the policy citing the use of the cheaper credit received under refinance facility in importing goods which led to depletion of foreign exchange reserves. A senior NRB official said that the refinance facility has now come down more or less to the levels of normal times. Before the central bank announced the refinance facility for the businesses hit by Covid-19 through the monetary policy 2020/21, borrowers used to avail limited business refinancing. The outstanding amount of refinancing provided by the central bank stood at Rs 7.49 billion in mid-July 2020. Of which, the general refinance is Rs 5.88 billion, and refinance to earthquake victims was worth Rs 1.61 billion. With the COVID-19-related closure of businesses hitting most businesses hard, the central bank announced a massive refinance package of over Rs 200 billion to revive the businesses. It approved a refinance facility of Rs 148.75 billion during the fiscal year 2020/21. The outstanding amount of refinancing provided by NRB remained at Rs 122.70 billion in mid-July 2021, according to central bank statistics. As many as 48,890 borrowed benefited from the package in that fiscal year, the NRB said. The large package of refinance facilities was continued in the fiscal year 2021/22 too. The central bank approved the business refinancing of Rs 115.70 billion in the fiscal year, benefiting as many as 24,305 borrowers. Because of cheaper interest rates, people tended to receive refinance packages. The specified sectors including export and sick industry received such facilities at three percent while micro, small, and medium enterprises at five percent. All other businesses received the facility at a five percent interest rate. The central bank officials admitted time and again that this flexible policy to revive the Covid-affected businesses was misused to divert funds to other purposes including procuring real estate and financing imports. With the country’s imports surging, gross foreign exchange reserves decreased by 13.1 percent to Rs 1,215.80 billion in mid-July 2022 from Rs 1399.03 billion in mid-July 2021. Fears spread about the country heading in the direction of Sri Lanka and the government imposed an import ban on certain products including vehicles in April last year.

The improvement in the country's external sector has continued in the sixth month of the current fiscal year. The new macroeconomic report released by the Nepal Rastra Bank (NRB) on Monday shows the country's forex reserves, balance of payment (BOP), tourism income, and remittance inflow have improved noticeably. Economists attributed the improvement to the policy efforts of the government and the NRB to control imports and credit expansion. According to them, the challenge now is to maintain the pace of improvement. Despite the easing of the liquidity situation, businesspersons have not been able to borrow money from banks due to the high-interest rates and restrictive arrangements in the working capital loan guidelines. As per the NRB report, Nepal's BOP is at a surplus of Rs 97.10 billion in the first half of FY 2022/23 compared to a deficit of Rs 241.23 billion in the same period of FY 2021/22. The BOP had turned surplus in mid-October, 2022 after a gap of 14 months. In US Dollar terms, the BOP remained at a surplus of Rs 734.4 million in this fiscal compared to a deficit of 2.02 billion in the same period of the last fiscal. The country's forex reserves increased by 10 percent in the first six months of the current fiscal year. Nepal's forex reserves stood at Rs 1337.29 billion in mid-January, 2023 (Poush) from Rs 1215.80 billion in mid-July 2022. In US dollar terms, the gross foreign exchange reserves increased by eight percent to Rs 10.30 billion in mid-January 2023 from Rs 9.54 billion in mid-July 2022. In the report, NRB has stated that the current level of foreign exchange reserves is sufficient to cover merchandise imports for 10.4 months, and merchandise and services imports for 9.1 months. According to NRB, remittance inflows have increased by 24.3 percent to Rs 585.08 billion in the first six months of the current fiscal year compared to a decrease of 5 percent in the same period of the last fiscal year. In US Dollar terms, the inflows increased by 13.9 percent to 4.5 billion in the review period against a decrease of 5.7 percent in the same period of the previous year. Meanwhile. the government's current account deficit (CAD) has also narrowed significantly in the last six months. As per the NRB report, CAD has now come down to Rs 29.47 billion which was Rs 352.16 billion in the same period of the previous year. Stating that the country's external sector is in a comfortable position, economists suggest that the government now needs to increase capital expenditure to take the economy out of the recession. Former governor of NRB Dipendra Bahadur Kshetri said that the current economic situation of the country should be taken cautiously. "While remittance has been the major source of the forex reserve, the country has failed to bring in foreign direct investment," he said. Inflation slows down slightly The NRB report shows consumer inflation has declined slightly in Poush (mid-December to mid-January) compared to Mangsir (mid-November to mid-December). Consumer inflation stood at 7.26 percent in mid-January compared to 7.38 percent in mid-December. Food and beverage inflation stood at 5.62 percent whereas non-food and service inflation rose to 8.57 percent. Under the food and beverage category, the price of the restaurant and hotel sub-category increased by 15.56 percent, tobacco products by 11.81 percent, cereal grains and their products by 9.56 percent, milk products and eggs by 9.70 percent, and alcoholic drinks by 8.84 percent. Under the non-food and services category, the price of transportation sub-category increased by 16.43 percent, health by 11.22 percent, recreation & culture by 8.76 percent, and furnishing and household equipment by 8.33 percent. According to NRB, the rate of inflation in the Kathmandu Valley, Terai, Hill, and Mountain belts surged to 6.93 percent, 7.49 percent, 7.30 percent, and 6.69 percent, respectively.

• BOP is at a surplus of Rs 97.10 billion
• Forex reserves increased by 10 percent to Rs 1337.29 billion
• Remittance inflows have increased by 24.3 percent to Rs 585.08 billion
• Forex reserves is sufficient to cover merchandise imports for 10.4 months, and merchandise and services imports for 9.1 months

The price of gold has increased by Rs 200 per tola in the domestic market on Wednesday. According to the Federation of Nepal Gold and Silver Dealers’ Association, the precious yellow metal is being traded at Rs 104, 800 per tola today. The gold was traded at Rs 104, 600 per tola on Tuesday. Meanwhile, tejabi gold is being traded at Rs 104, 300 per tola. It was traded at Rs 104, 100 per tola. Similarly, the price of silver has dropped by Rs 5 and is being traded at Rs 1, 315 per tola today.

The European Union (EU) has shown its interest in investing in Nepal's hydropower sector through the European Investment Bank (EIB), the lending arm of the EU. According to Nepal Electricity Authority (NEA), the EU has expressed its desire to invest in the 635 ME Dudh Koshi Reservoir Project through the consortium financing of international financial institutions. A high-level team of EU made an on-site inspection of the under-construction 220 KV Chilime-Trishuli Transmission Line Project last Monday. A delegation led by EU's Asia Director, Peteris Ustubs visited the project site under construction in Nuwakot and Rasuwa on Monday. "After observing the progress of the project, the EU has shown its desire to invest in other projects as well," said Kulman Ghising, Executive Director of NEA. According to Ghising, the EU is interested in investing in the production, transmission, and distribution of hydropower in Nepal through the EIB and has shown eagerness in investing in the proposed 635 MW Dudhkoshi Reservoir project, he said. "EU officials are positive for investing in other projects after seeing progress in the construction of the Chilime-Trishuli transmission line," said Ghising. The Dudhkoshi Project is one of the important projects being initiated by the NEA. The government through the federal budget of FY 2022/23 has allocated Rs 940 million for its construction. The total cost of the project has been estimated at USD 1.523 billion and it will take six years to build the dam and other structures. The main dam will have a height of 220 meters and hold back 1,581 cubic megameters of water. The snowmelt-fed Dudh Koshi River originates in the foothills of Mt Everest, allowing the plant to perform efficiently even in the dry season. The project will produce 3,443 GWh annually In 1998, the Canadian International Water and Energy Consultants carried out the first feasibility study and suggested generating 300 MW from the plant. In 2013, a review of the feasibility study carried out by the electricity authority upgraded the capacity to 635 MW. EIB has been providing assistance in Nepal's hydropower sector. It has provided a concessional loan for the construction of the Chilime-Trishuli Transmission Line Project which has a total cost of USD 39 million. The EU delegation inspected Trishuli 3B hub substation and transmission line under construction at Dandagaon located in Uttargaya Rural Municipality-2 of Rasuwa district. In addition to the Chilime-Trishuli transmission line, EIB has provided concessional loans for the 140 MW Tanahun Hydropower Project, the 220 kV Masryangdi Corridor Transmission Line, and the electrification of the districts of Far West and Lumbini provinces. The Chilime-Trishuli 220 KV transmission line is being constructed to evacuate power from the hydropower projects under construction and to be built on the Trishuli river and its tributaries. The overall physical progress of the project has reached 81 percent with the progress of the transmission line and substation being 71 percent and 70 percent, respectively. The construction of transmission lines and substations is being carried out in a fast manner with the aim of completing the project within March 2023.