At a time when everything else seems to be going wrong, consumer prices continue to remain low. The Nepal Rastra Bank, in its economic report for the fourth month of the fiscal year, says government spending is up, mainly due to increased disbursements for budgeted projects. However, even though resource mobilisation improved compared to the corresponding year-earlier period, it was not enough to match expenses and forced the government to borrow Rs 1 billion over statutory limits. The deficit of Rs 3.61 billion was plugged with foreign cash loans (Rs 1.42 billion) and an overdraft of Rs 2.19 billion.

The National Urban Consumer Price Index grew by 2 percent compared to 2.7 percent last year. Prices were kept in check by a drop of 3.4 percentage points in the index for food and beverages which was enough to offset the 2.5 percentage point increase in prices of goods in the non-food and services categories. The price of imported goods, including petroleum products, rose most dramatically.

Exports continued to grow, and those to India increased by 50 percent. The export of woollen carpets, readymade garments and handicraft has stagnated while pashmina, tanned skins and pulses continue to do well. Pashmina sales totalled Rs 4.3 billion during the review period. Imports were slow during the four-month period, leading to a narrowing of the trade deficit by 3.9 percent to Rs 16.45 billion.

The balance of payments in the first two months was favourable, despite a current account deficit of Rs 2.6 billion which resulted from a drop in services and transfer incomes. Still, the country has enough foreign currency to pay for imports for 11 months. In mid-November, foreign exchange holdings in the banking system were Rs 100 billion, of which 82 percent was retained in convertible currency.