Weakening Nepali currency to hit economy

Kathmandu, March 11

Constant depreciation of Nepali currency vis-à-vis US dollar in the recent weeks will hit country’s economy and growth in the ongoing fiscal year, as per experts.

As Nepal is an import-based economy, constant depreciation of domestic currency against the US dollar will also make imports costlier and impact the country’s inflation, they opined.

Nepali rupee tumbled to an all-time low of 118.9 today, as the Indian rupee, with which the country’s currency is pegged, came under pressure after the global financial market meltdown signalled that the world is staring at a coronavirus-led economic recession.

As per the reference rate of Nepal Rastra Bank (NRB), each dollar will fetch Rs 118.12 on Thursday.

The domestic currency has devalued by Rs 4.54 against the US dollar over the last one month period. The Nepali currency was traded at 114.36 vis-à-vis US dollar on February 11.

As per experts, this downward spiral of Nepali rupee against US dollar will pose a risk for import-based Nepali economy.

“Strengthening of the US dollar would be an opportunity for Nepal if our economy was export-oriented.

As Nepal’s economy relies heavily on imports, the weakening rupee against the US dollar will have severe adverse impact on our economy,” said Keshav Acharya, an economist.

A weaker currency makes imports costlier and it will simultaneously create an inflationary pressure on the economy. Likewise, the country will lose out while repaying interests and principals of foreign loans, which need to be paid in US dollars.

“Dollar-denominated power purchase agreements of Nepal Electricity Authority (NEA) will compel the authority to pay more to the power suppliers,” he explained.

As imports will be dearer, the balance of payment situation will take a further hit, according to economists.

The country could have reaped benefits from the appreciation of the US dollar as remittances that migrant workers send home will have more value. Unfortunately, this might not be the case in the present context when the number of remitters is expected to fall significantly amid different labour destinations banning arrival of foreigners, including Nepali workers, due to the coronavirus, as per Acharya.

According to economists, the impact of depreciating domestic currency in the present context depends on how long it will take to contain the coronavirus. “Since it is uncertain when the situation will be brought under control, it is difficult to predict the impact just yet,” added Acharya.