KATHMANDU/NEW DELHI, APRIL 12
Soaring global prices of commodities such as crude and edible oil are adding to the pressure on Nepal's foreign currency reserves amid a decline in remittances and tourist earnings.
Nepal has imposed restrictions on imports of cars, gold, cosmetics and other non-essential items to protect its dwindling reserves. Critics say it could face an external payments crisis, though the government rejects this.
Nepal's import bill rose 38.6% to 1.31 trillion Nepali rupees ($10.8 billion) in first eight months of the financial year that started in mid-July, forcing the government to dip into foreign currency reserves amid sluggish export earnings.
Economists at the Asia Development Bank have warned higher oil and other commodity prices could push up domestic inflation, and add to pressure on external trade. However, the country doesn't face a situation like Sri Lanka, which has warned of a sovereign default.
Here are key economic factors that are raising concerns for the Himalayan country, among the poorest in the world:
FOREX RESERVES
Gross foreign exchange reserves fell to $9.6 billion as of mid-March, down 18.5% from mid-July.
The reserves are sufficient to support imports for a little more than six months for the country of around 29 million people, where India and China jostle for influence.
DECLINE IN REMITTANCES
Remittances by Nepali workers, which constitute nearly a quarter of the economy and are crucial for external payments, fell 3.0% to $5.3 billion between mid-July to mid-March, compared with a 5% increase in the same period a year earlier.
While earnings from tourism, which fell sharply after the start of the pandemic in 2020, are slowly picking up, they remain well below pre-COVID levels.
WIDENING TRADE DEFICIT
The trade deficit rose 34.5% year-on-year to 1.16 trillion Nepali rupees ($9.52 billion) in the first eight months of the fiscal year as growth in exports failed to keep pace with surging imports.
RISING GOVERNMENT DEBT
Nepal's government debt increased to 41.4% of gross domestic product in the 2021 fiscal year, from an average of 25.1% between 2016 and 2019, due to increased spending during the pandemic.
HIGH INFLATION
Annual consumer price-based inflation has accelerated to 7.1% in mid-March, a five year high, pushed by rising crude oil and other commodity prices, compared with an average of 5.18% in the past three years.
PRESSURE ON BALANCE OF PAYMENTS
Nepal's balance of payments were in a deficit of $2.17 billion in the first eight months of this fiscal year, compared with a surplus of $565.8 million in the same period a year earlier.
($1 = 121.7600 Nepali rupees)
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