Nepal | August 11, 2020

Foreign currency reserves depleting

Himalayan News Service
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Kathmandu, May 19

The government needs to be a bit more cautious about skyrocketing imports that have depleted foreign currency reserves as remittance has plummeted and transfer of foreign funds, including foreign direct investment, is also low.

Nepal Rastra Bank had said the country’s reserve position till mid-April was sufficient to cover imports for 9.7 months.

“The situation is not so alarming. However, a stronger US dollar vis-à-vis Nepali currency and stagnant remittance growth could pose a threat,” said Nara Bahadur Thapa, executive director of NRB.

As traders tend to harbour the general perception that import duties will be hiked in the new fiscal budget, they raise their imports in the last few months of the fiscal. Imports also become dearer when the US dollar appreciates. Along with appreciation of the US dollar, the price of petroleum products follow an upward trend in the global market.

“While it is difficult to curb imports, the government must adopt precautionary measures in relation to rampant imports when the foreign currency reserve is insufficient to cover import for at least eight months,” Thapa reiterated.

The country imported goods worth Rs 876.29 billion in the first nine months of this fiscal, which was a 20.6 per cent growth compared to the same period last fiscal. The country also recorded trade deficit of Rs 816.55 billion, a growth of 21.7 per cent. “There is potential of import growth as construction and reconstruction activities have gathered pace,” according to traders.

However, sources for generating foreign exchange reserves are not strong. Growth of remittance, on which Nepal has been relying since long to make its foreign exchange reserves robust, retarded to 5.6 per cent in the nine months of this fiscal compared to 6.3 per cent in the corresponding period of the previous fiscal.

In the first nine months of the fiscal, the country received Rs 540.38 billion from remittance, Rs 59.73 billion from exports, Rs 14.41 billion was transferred as foreign direct investment and Rs 50.3 billion through travel component tourism.

However, the sum of foreign exchange income was Rs 664.82 billion whereas trade deficit was Rs 816.55 billion, which experts term ‘unsustainable deficit’.

Forex Reserve
Month Reserve size Import cover (based on import growth)
Mid-July $10.49bn 11.4 months
Md-August $10.54bn 12 months
Mid-September $10.56bn 11.4 months
Mid-October $10.64bn 11.2 months
Mid-November $10.62bn 11.6 months
Mid-December $10.57bn 11 months
Mid-January $10.51bn 10.6 months
Mid-February $10.21bn 9.8 months
Mid-March $10.13bn 9.7 months
Mid-April $10.22bn 9.7 months

Source: Nepal Rastra Bank

A version of this article appears in print on May 20, 2018 of The Himalayan Times.

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