The latest macroeconomic update unveiled by the Nepal Rastra Bank (NRB) sharply contradicts the recent assurances made by Finance Minister Janardhan Sharma that the country is not facing an economic crisis.

The macroeconomic update unveiled by the NRB today reveals that remittance inflow slowdown and Nepal's ballooning trade deficit are exerting pressure on country's current account, balance of payments (BoP) and foreign exchange reserves.

During the eight months of 2021-22 (mid-July to mid- March), the country's merchandise imports increased 38.6 per cent to Rs 1,308.73 billion compared to an increase of 2.1 per cent a year ago. Even as merchandise exports increased 82.9 per cent to Rs 147.75 billion, the huge mismatch resulted in the total trade deficit surging by 34.5 per cent to Rs 1,160.98 billion. Such a deficit had increased 1.6 per cent in the corresponding period of the previous year.

The export-import ratio increased to 11.3 per cent in the review period from 8.6 per cent in the corresponding period of the previous year.

Imports of petroleum products, transport equipment, vehicles and spare parts, other machinery and parts, medicines, crude palm oil, crude soybean oil, gold and other commodities soared during the review period, as per the central bank report.

The country's imports of just the petroleum products in the eight months of the fiscal stood at Rs 185.17 billion, more than the total exports during the period.

With the price hike of the petroleum product in the international market putting pressure on the foreign exchange reserves due to Russia-Ukraine war, Finance Minister Sharma had informed on Monday that the finance ministry has submitted a proposal in the Cabinet to reduce the cost of fuel consumption in the government bodies by 20 per cent.

Moreover, he mentioned that a proposal has been prepared not to use government vehicles on public holidays.

The gross foreign exchange reserves decreased 18.5 per cent to $9.58 billion in mid-March 2022 from $11.75 billion in mid-July, 2021. Likewise, reserves held by banks and financial institutions (except NRB) decreased 0.9 per cent to Rs 152.95 billion in mid- March 2022 from Rs154.39 billion in mid-July 2021.

Based on the imports of eight months of 2021-22, the foreign exchange reserves of the banking sector is sufficient to cover the prospective merchandise imports of 7.4 months, and merchandise and services imports of 6.7 months, as per the central bank report.

In a bid to control the outflow of the country's depleting foreign exchange reserves, the Nepal Bankers' Association (NBA), an umbrella organisation of commercial banks, on Sunday decided not to issue letters of credit (LCs) for the import of non-essential goods.

According to NBA, the LCs will not be issued for the import of luxury items such as vehicles, gold, silver, sugar, chewing gum, dry foods, furniture, cigarettes, alcohol, perfume and mobile phones, among others Meanwhile, the current account remained at a deficit of Rs 462.93 billion in the review period compared to a deficit of Rs 151.42 billion in the same period of the previous year. The BoP deficit stood at Rs 258.64 billion in the review period against a surplus of Rs 68.01 billion in the same period of the previous year. Remittance inflows decreased 1.7 per cent to Rs 631.19 billion in the review period against an increase of 8.7 per cent in the same period of the previous year.

A version of this article appears in the print on April 13, 2022, of The Himalayan Times