KATHMANDU, NOVEMBER 16
Significant improvement in remittance inflow coupled with import restrictions on certain non-essential goods seem to have propped up the country's foreign exchange reserves, which rose by $130 million in the one-month period between mid-September and mid-October, as per the latest macroeconomic update unveiled by the Nepal Rastra Bank (NRB) today.
As per the central bank, the gross foreign exchange of the country had gone up to $9.48 billion in mid-October, compared to $9.35 billion in mid-September. However, over the three months of this fiscal, the foreign exchange reserves has slipped by 0.6 per cent from $9.54 billion in mid-July.
Issuing a notice on Nepal Gazette on October 14, the Ministry of Industry, Commerce, and Supplies had extended the restriction on the import of certain 'luxury' items, including all kinds of readymade beverages, vehicles (jeep, car and vans, with exception of ambulances and hearse), two-wheelers (above 150 cc) and mobile phone sets (above $300) till December 15 in a bid to prop up the country's depleting foreign exchange reserves.
Consequently, import growth dropped 16.2 per cent to Rs 401 billion during the three months of current fiscal year against an increase of 63.7 per cent a year ago.
But at the same time, merchandise exports decreased 35.7 per cent to Rs 41.82 billion against an increase of 109.5 per cent in the same period of the previous year.
While the export-import ratio decreased to 10.4 per cent in review period from 13.6 per cent in corresponding period of previous year, the total trade gap narrowed by 13.1 per cent to Rs 359.18 billion.
As per the Broad Economic Categories (BEC), the intermediate and final consumption goods accounted for 57 per cent and 43 per cent of the total exports respectively, whereas the ratio of capital goods in total exports remained negligible at 0.03 per cent in the review period. In the same period of the previous year, the ratio of intermediate, capital and final consumption goods had stood at 41.8 per cent, 0.03 per cent and 58.2 per cent of total exports, respectively.
On the imports side, the share of intermediate goods was 53.2 per cent, capital goods 8.3 per cent and final consumption goods remained at 38.5 per cent in the review period. Such ratios were 53 per cent, 11 per cent and 36 per cent respectively in the same period of the previous year.
Consequently, the current account remained at a deficit of Rs 34.28 billion in the review period compared to a deficit of Rs 149.81 billion in the same period of the previous year.
Likewise, balance of payments (BoP) recorded a surplus of Rs 12.43 billion in the review period compared to a deficit of Rs 87.71 billion in the same period of the previous year.
Based on the imports of three months of current fiscal year, the foreign exchange reserves of the banking sector is sufficient to cover the prospective merchandise imports of 9.6 months, and merchandise and services imports of 8.3 months.
Meanwhile, remittance inflows increased 16.8 per cent to Rs 281.05 billion in the review period against a decrease of 7.1 per cent in the same period of the previous year.
According to economist Keshav Acharya, the government policy of banning import of certain non-essential items has somehow managed to improve the country's current account, BoP and foreign exchange reserves.
He, however, opined that import restriction is not a sustainable solution and the government should rather focus on import-substitution policy.
"With limited source of foreign capital, the country is struggling to maintain the foreign exchange reserves owing to the COVID pandemic and Russia-Ukraine war," he shared. "Instead of the exporting goods, we've been exporting our human resources to other countries. Moreover, we are not receiving adequate foreign grant and foreign direct investment lately and also the tourism sector is struggling to generate precious dollars at par with the pre-pandemic level."
A photo provided by Toyota Motor Corporation shows new Toyota gas-electric Prius hybrid models.
A version of this article appears in the print on November 17, 2022 of The Himalayan Times.
