KATHMANDU, JULY 14
The recent currency fluctuations have caused a media stir on the effects of exchange rates on the tourism industry as theoretically a weaker currency attracts people to one's country. But Nepali tourism entrepreneurs are not really expecting any windfall from the dollar strength in the coming days.
"Because most of our foreign visitors are Indian nationals and as Nepali rupee is pegged with the Indian currency, we do not anticipate any major positive impact due to strengthening of the dollar," said Binayak Shah, senior vice-president of Hotel Association Nepal.
While visitors from America and Europe spend precious dollars, the number of tourists from these regions is not very high, he added.
According to the statistics shared by Nepal Tourism Board, a total of 46,900 tourists came to Nepal via air in the month of June, of whom 8,351 were Americans and 4,787 were Europeans, while the number of Indian tourists was 23,000.
As per the exchange rate of the Nepal Rastra Bank, Nepali rupee will plunge to a new record low of 128.11 vis-à-vis dollar tomorrow. The Nepali currency has depreciated by 7.45 per cent since the beginning of the year when each dollar used to fetch Rs 119. 24.The weakening of the rupee, meanwhile, is likely to further quicken inflation and widen the trade gap in the coming days, warn traders and economists.
Economist Bhim Bhurtel said the depreciation of local currency against the dollar is the most alarming for Nepal's economy as it will cause inflation to jump and ultimately worsen the poverty rate.
"Basically the strong dollar means the price of imported commodities will exert more inflationary pressure on the country, hit spending capacity of the citizens and push more people into extreme poverty."
The year-on-year consumer price inflation soared to nearly a six-year high of 8.56 per cent in the 11th month (mid-May to mid-June) of fiscal year 2021-22 compared to 4.19 per cent a year ago, the latest macroeconomic data of the central bank unveiled on Monday showed. The last time inflation was at this level in mid-August of 2016, when it stood at 8.6 per cent.
According to Shekhar Golchha, president of the Federation of Nepalese Chambers of Commerce and Industry (FNCCI), there are both pros and cons to the weakening of the local currency. "Our trade takes place in Indian currency and dollars, so the stronger dollar will make imported merchandise costlier."
A robust dollar could have been a boon for the Nepali economy if the country's export base was stronger, as per Golchha. "However, our production is weak and therefore, we will be unable to capitalise on this opportunity."
According to Bhurtel, the robust greenback will further widen foreign debt servicing as the payment of interest is always made in dollars. According to the Public Debt Management Office, the fluctuation in exchange rate has resulted in exchange loss of Rs 19.37 billion during the third quarter of fiscal year 2021-22.
The exchange rate for dollar on January 15 was Rs 118.95, compared to Rs 122.12 on April 13, meaning an exchange loss of Rs 3.17. The loss will be greater in the fourth quarter.
Meanwhile, strengthening of the dollar will be beneficial for remittance recipients, Bhurtel said, as they will be able to get more local currency for the same amount of dollars. Similarly, he said the strong dollar will help generate more revenue for the government through customs duties.
A version of this article appears in the print on July 15, 2022, of The Himalayan Times.
