Nepal | May 21, 2019

Country’s forex reserves slump to 32-month low

Himalayan News Service

Kathmandu, December 24

Nepal’s foreign exchange reserves have slumped to a 32-month low despite robust growth in remittance income and downward revision in foreign exchange facility for Nepalis visiting overseas, raising the spectre of the country facing a balance of payments crisis if the problem continues to grow.

Nepal’s foreign exchange reserves stood at $9.4 billion in November, according to the latest macroeconomic report of Nepal Rastra Bank, the central bank, released today. The reserves last stood at this level in March 2016.

Nepal’s foreign exchange reserves have been contracting since the fiscal year began in July, as imports have surged. The current reserves are sufficient to cover prospective merchandise imports of 9.2 months, and merchandise and services imports of 7.9 months, central bank says.

Foreign exchange reserves shrink when outflow of money from the economy exceeds inflows. Outflow of money from the economy surpassed inflows by Rs 57.3 billion in the first four months of the current fiscal year, the central bank report says. This means Nepal recorded a balance of payments deficit of Rs 57.3 billion in between mid-July and mid-November.

The outflow of money from the economy exceeded inflows despite 36.4 per cent hike in remittance income to Rs 312.3 billion in the first four months of the current fiscal year. Remittance income had dipped 1.4 per cent in the same period a year ago.

A surge in transfer of money by Nepalis working abroad could not prevent the foreign exchange reserves from falling because of 35.8 per cent hike in imports in the first four months of the current fiscal year. Nepal’s import bill had gone up by 18.1 per cent in the same period a year ago.

Nepal spent Rs 483.76 billion to import a range of merchandise goods in the first four months of this fiscal year, with petroleum products, vehicles and spare parts, MS billet, other machinery and parts, and aircraft spare parts topping the list. Exports, on the other hand, grew by a modest 11 per cent in the four-month period to Rs 29.3 billion, the central bank report shows. This mismatch in growth of imports and exports widened the country’s trade deficit by 37.8 per cent to Rs 454.5 billion in the first four months of the current fiscal year.

Also, net services deficit rose to Rs 13.2 billion in the four-month period from Rs three billion in the same period a year ago, as spending made by Nepalis abroad superseded income generated from foreign tourists who visited Nepal. Nepalis spent Rs 34.9 billion overseas in the first four months of this fiscal year but generated Rs 25.1 billion from foreigners who visited Nepal. To reduce the outflow of money, the central bank in November prevented Nepalis visiting foreign countries from acquiring foreign exchange facility of more than $1,500 from $2,500 in the past.

Among others, foreign direct investment dipped 51.3 per cent to Rs 4.9 billion in the first four months of current fiscal, which also caused foreign exchange reserves to contract.


A version of this article appears in print on December 25, 2018 of The Himalayan Times.


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