Dollar depreciation to raise import, could hit tourism, remittance
Kathmandu, August 29
Depreciation of the US dollar against the Nepali currency in recent months is expected to increase imports as import goods will be relatively cheaper as compared to earlier period. The dollar has depreciated by around five per cent in last one year — Nepali rupee was valued at Rs 107.60 per dollar on August 29 last year, which is at Rs 102.55 as of today.
Cheaper import will boost consumption, according to economists. The country’s trade gap could further widen as earnings from exports go down along with the depreciation of the US dollar. According to Shankar Sharma, former vice chairman of the National Planning Commission, depreciation of the dollar will have more disadvantages for the country. “Remittance volume may come down because
migrant workers will be discouraged to send remittance when exchange rate of the Nepali currency against the US dollar is low.”
Rising imports could also exert pressure on the balance of payments (BoP) as the remittance inflow could slow down and imports could surge exponentially.
Similarly, depreciated dollar will also hit customs revenue as imported goods will be cheaper as the customs valuation is carried out in percentage terms on the price of the goods. However, exponential import growth is expected to make up the desired revenue collection from customs.
Lower purchasing power of the dollar could also affect the tourist inflow, as per Sharma. On the other hand, the country will lose more dollars in dividend repatriation of foreign companies as their profit in Nepali currency will have the capacity of purchasing more dollars.
However, there could be some advantages for the country from the weak dollar. One is that inflation could come down with adequate supply of goods through cheaper imports. The budget allocated for the repayment of interest and principal of foreign loans could also be saved as Nepali currency is getting stronger against the dollar. Dollar depreciation will also benefit students set to go abroad for studies and migrant workers as the price of air tickets sold by international airlines in Nepal (in Nepali rupees) will come down and students and migrant workers going abroad will have to pay less for dollars.
This will also help the Nepal Electricity Authority to minimise its loss especially in power purchase agreement (PPA) that is signed in dollar terms.
- Imports will be cheaper and inflation could come down
- Budget allocated for repaying interest and principal of
foreign loans could be saved
- NEA can minimise its loss especially in PPA that is signed in dollar terms
- Price of international air tickets will come down, helping students and travellers going abroad
- Rising import can exert pressure on balance of payments
- Remittance inflow could slow down
- Export earning will decrease
- Lower purchasing power of dollar could hit tourist inflow
- Could impact customs revenue
- Country could lose more dollars in dividend repatriation of foreign companies