Forex reserves decline with fewer remittances, more imports

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KATHMANDU: Foreign exchange reserves of Nepal has declined in the first three consecutive months of the current fiscal year 2021/22.

A constant fall in the inflow of remittances amid the lingering COVID-19 pandemic, the biggest source of foreign exchange earnings for Nepal, and surging imports during the same period were contributing to the dire situation, according to Nepal Rastra Bank.

The gross forex reserves decreased by 6.5% to $ 10.98 billion in mid-October from $ 11.75 billion at the beginning of the current fiscal year, noted a new report released by the central bank.

The volume fell by 2.8% and 5.2% respectively in the first and second months of the current fiscal year.

According to the central bank, the current forex reserves are enough for a sustaining import of goods and services for 7.8 months, just above the minimum threshold of seven months set by the bank through the monetary policy for the current fiscal year.

“It is a really worrying trend for the economy, as Nepal’s ability to buy foreign goods and services has weakened,”  Keshav Acharya, a senior economist said.

“The time has come for the government and central bank to take firm action to reverse this situation,” he said.

Nepal’s import-dependent economy heavily relies on imported goods, including consumer goods, industrial raw materials and machinery. Economic activities in the country are rebounding as new COVID cases have fallen to hundreds from thousands in recent months, boosting demand for large quantities of foreign goods.

Imports grew by 63.7% to Rs 478.52 billion ($4 billion) during the first three months of the current fiscal year, according to the central bank data.

While Nepal’s exports surged by 109.5%, the earnings were a meagre 65 billion rupees ($ 543 million).

“Our earnings from the exports are insignificant to make up losses in foreign exchange reserves due to surging imports,” said Acharya.

Income from remittances and tourism revenues had declined due to COVID-19 in the past months, which was making things worse.

Money sent from abroad had dipped by 7.7% to $2.02 billion during the first three months of the current fiscal year, in contrast with a rise of 7.6% during the same period of the prior fiscal year.

During the first and second months of the current fiscal year, the remittance inflows fell by 17.5% and 5.8% respectively, according to the central bank report.

Remittances were expected to grow by the end of the third month as Nepali migrant workers were supposed to send back large amounts of money for Dashain and Tihar, the two largest festivals in the country.

The inflows fell though as many as 67,316 Nepali workers worked abroad in the first quarter of the current fiscal year, as against just 1,880 workers during the same period of the last fiscal year.

“This indicates that something wrong is happening in bringing in remittances through formal banking channels,” observed Acharya.

Earnings from the tourism sector stood at $ 35.4 million during the first three months of the current fiscal year, down sharply from $ 152.8 million during the same period of the 2019-20 fiscal year.

In the past fiscal year, the tourism sector generated a total of $ 61.7 million dollars only in revenues, as the country had been devastated by COVID-19 throughout the period, according to Nepal Rastra Bank.

Meanwhile, Nepal had just attracted $ 44.8 million in foreign direct investments in the first three months of the current fiscal year, not enough to help swell its forex reserves.

Acharya suggested concrete measures by the government to discourage the import of luxury goods as well as agricultural products available in the country.

“I do not suggest banning the import of certain goods, but other measures to discourage imports which are contributing to a massive foreign exchange decrease should be taken,” he said.

Dev Kumar Dhakal, Spokesperson for the central bank, agreed on the need to curb surging imports.

“We are discussing with the Nepali government about how to discourage the current massive imports,” he said.

Source: RSS/Xinhua

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