MoF to intensify monitoring to check US dollar crunch in market

Possible reasons

•    Under-invoicing during imports

•    Migrant workers using illegal channels to send money back home

•    Money changers suspected in being involved in taking US dollars abroad

•    Cheaper credit and/or lack of investment opportunities

Kathmandu, October 29

As the shortage of US dollar has become acute, the Ministry of Finance (MoF) is preparing to intensify its monitoring activities to end the possible reasons that are causing a dollar crunch.

MoF has identified a few strong reasons that have been causing shortage of the US currency.

“We believe that under-invoicing in import is still rampant and importers might be sending money through other channels such as hundi to pay for the goods that are under-invoiced,” said Finance Secretary Shanta Raj Subedi.

Normally, in third-country trade, traders use a letter of credit as the mode of payment and quote a price that is lower than the actual cost to evade customs tax, which is known as under-invoicing in import.

The customs officer at customs point valuates the imported goods based on the cumulative cost of the goods, insurance and freight. Low value of imported goods means traders have to pay less tax at the customs points.

According to Finance Secretary Subedi, the MoF has directed the Inland Revenue Department (IRD) and the Department of Revenue Investigation under the ministry to ramp up market monitoring so that the price quoted at the customs points and the market price of the goods can be cross-checked.

“Both the departments, in coordination with the Department of Customs, will speed up market inspection after Tihar and Chhath,” he said.

Another reason for the shortage could be that as foreign currency is easily available at various destinations where Nepalis are working, many groups are involved in collecting money from Nepalis working there and are providing money to their families back here.

By doing so, they are taking away the money that is supposed to come into the country as remittance. According to MoF, inflow of remittance from South Korea is very low as compared to other destinations as hundi is rampantly prevalent there.

Similarly, money changers are also suspected of being involved in taking away the US currency from the country. Money changers collecting US dollars are reportedly offering comparatively higher exchange rates than the banks. The government has also started inspecting money changers.

After a meeting between MoF and officials from the Ministry of Home Affairs (MoHA) a few days ago, the MoHA has also instructed security agencies to keep an eye on the activities of money changers in the country.

As per Nepal Rastra Bank (NRB), till the first two months of this fiscal, the country had foreign exchange reserves worth $9.95 billion. The shortage of US currency is basically due to the preference of Nepalis travelling abroad to carry cash rather than other instruments, as per Bhisma Raj Dhungana, executive director of NRB.

The central bank allows a person to take up to $500 in cash on the basis of the visa, air ticket and personal requirements. But banks in recent days do not have dollars to provide foreign exchange facility to those travelling abroad.

Meanwhile, MoF also feels that there has been capital flight from the country due to cheaper credit being offered by banks and financial institutions (BFIs) and also due to lack of investment opportunities.

“Borrowers from BFIs might have been taking away money outside the country through hundi and other means to make investments for high returns in other countries,” according to MoF officials.