KATHMANDU, FEBRUARY 7
Given the critical foreign exchange reserves of the country last year, the rise in remittance inflow in the first six months of 2022-23 should give the Prachanda-led government some relief.
Dependent as the national economy is on remittances, it has thus shown signs of recovery, with improvement in foreign exchange reserves, balance of payments (BoP) situation and the current account. According to Nepal Rastra Bank, remittance inflows increased by 24.3 per cent to Rs 585.08 billion from mid-July 2022 to mid-January 2023, against a drop of 5 per cent in the same period of the previous year.
Gross foreign exchange reserves has increased by 8 per cent in dollar terms to $10.30 billion in mid-January from $9.54 billion in mid-July. However, in rupee terms, the gross foreign currency reserve increased by 10 per cent, from Rs 1,215.8 billion in mid-July to Rs 1,337.29 billion in mid-January. Nepal, therefore, has enough foreign currency reserves to import merchandise goods for 10.4 months, and goods and services for 9.1 months.
After foreign currency reserves dwindled significantly, the government put restrictions on the import of 10 luxury or non-essential goods in April last year.
The government had to take the stringent measure to prop up the forex reserve after it fell by 16.3 per cent in the first eight months of 2021-22 due to a surge in imports. However, even with the ban lifted on all lux-urious goods, such as cars, motorcycles, mobiles and TV sets, from mid-December, forex reserves have swelled this year, thanks to remittance inflow and the tourism industry showing a rebound despite fears of another bout of COVID-19 attacks. Nepaliyouths have once against started making a beeline to the prime labour destinations, namely the Gulf countries and Malaysia, after COVID cases stabilised worldwide in August. In December-January alone, Nepal received remittances worth Rs 104.60 billion.
While the surge in forex reserves is good for the economy, Nepal cannot remain complacent about it.
Nepal's total trade deficit in the first half of 2022-23 is a whopping Rs 711.86 billion, despite a decrease by 19.2 per cent. Exports to India and China, Nepal's two major trading partners, fell by 40.1 per cent and 25.2 per cent respectively during the review period. Despite years of efforts, Nepal has been unable to diversify its exportable items, which consist mostly of cooking oil, handwoven woolen carpets, polyster yarn and jute goods. Merchandise exports totaled just Rs 80.81 billion ($620 million), while the country imported petroleum products worth Rs 148 billion during the same period. Compare this to Mongolia's exports of commodities worth $12.5 billion in 2022.
This is enough testimony that governments in Nepal have failed to do anything to shore up the economy.
Since multi-party democracy was ushered into the country in 1990, the government and the parties have been preoccupied with nothing but unconstructive politics that promotes foreign interests at the cost of national ones. The current government would win kudos if it is able to put the remittance money in the productive sectors, instead of importing non-essential goods.
Nepal can't afford to squander forex on import of non-essential goods.
A version of this article appears in the print on February 8, 2023, of The Himalayan Times.
