Kathmandu, September 21

The upcoming festive season may not be all that merry this year, as the country is likely to witness acute shortage of goods, including essential items.

The concern has come to the fore as a sharp reduction in import financing has been witnessed since last month. This is because along with the onset of protest in Tarai region of the country, traders have stopped importing goods.

Due to uncertainty in the Tarai region, where major trade routes and customs points are located, importers are hesitant to place orders for fresh consignment from third countries citing high costs of import.

According to the Monitoring Unit under Foreign Exchange Management Department of Nepal Rastra Bank only 410 letters of credit amounting to $81.06 million were opened in August, compared with 2,099 L/Cs that amounted to $434.85 million in the corresponding period of previous fiscal.

NRB is yet to collect the data of L/Cs opened by commercial banks this month, however, bankers have said that the number of L/Cs opened so far have dipped even further. In September last year, 2,226 L/Cs amounting to $604.94 million were opened to import goods from third countries and India.

According to NRB, trade financing covers 20 per cent of the total lending portfolio of commercial banks, which is worth Rs 1,100 billion, and it might decline this year due to low import. In addition, lack of raw materials is also likely to hit industrial production.

Normally, import financing of commercial banks increases in August and September, as traders open higher amount of L/Cs to order consignments from sellers of third countries and India eyeing high sales in the festive season.

Bhuvan Kumar Dahal, CEO of Sanima Bank, said it normally took one-and-a-half months from opening the L/C to receiving goods. This means even if the traders open the L/Cs now, their import is unlikely to arrive prior to the Dashain festivities.

Due to the ongoing protest in Tarai, a large number of cargos are stuck at Kolkata port of India, the country’s only gateway for third country trade. Importers are having to pay high demurrage charges to the port authority and shipping liners with the goods stuck at the port yard since a long time. The port provides grace period of 20 days to release cargo ferried via train and one week for that ferried via road.

“Importers are wary of placing orders for fresh consignments from third countries due to the unrest in Tarai,” said Akhil Chapagain, president of Nepal-Turkey Chamber of Commerce and Industry and a prominent importer, adding, “Importers are likely to begin placing orders for fresh consignments from overseas only after the goods stranded at Raxaul-Birgunj clear customs procedures.”

Even as the protest in Tarai has not affected trade with China via land route, a majority of import from China is also carried out through sea route.