Increasing imports hurt foreign currency reserve

Kathmandu, Sept. 29:

The soaring import of goods from India has forced the Nepal Rastra Bank to mobilise foreign currencies to buy the Indian Rupee (INR).

In the first month of the current fiscal year 2018/19, the central bank purchased Indian currency equivalent to Rs. 40.19 billion by selling USD 320 million, Euro 16 million and Pound Sterling 20 million.

The amount purchased is higher by Rs. 9.42 million as compared to the first month of the last fiscal year 2017/18, said the NRB in its latest macroeconomic and financial situation report.

“Indian currency equivalent to Rs. 30.77 billion was purchased through the sale of USD 300 million last year,” read the report.

Nepal imported goods worth Rs. 120.61 billion in the first month of this fiscal, alarmingly up by 54.3 per cent from the same period last year while the import trade was increased by just 10.5 per cent in last mid-July to mid-August period.

Imports from India have increased by 43 per cent.

In 2017/18, Nepal imported the goods of Rs. 1242.8 billion and India had the share of 65.2 per cent following by China 12.8 per cent and other countries 22 per cent.

Three years ago, Indian goods had 61.7 per cent share in total imports in Nepal, and China had 15 per cent share.

Statistics of the Trade and Export Promotion Centre (TEPC) showed that imports of petroleum products, vehicles and spare parts, other machinery and parts, M. S. billet and hot-rolled sheet were increased.

Widening trade deficit with India is an issue of concern as although Nepal received about Rs. 101 billion remittance from India last year, it’s nothing as compared with the size of import, said Executive Director of the NRB Nara Bahadur Thapa.

However, he maintained that till the foreign currency reserve (balance of payment) is good there would be no problem for the import trade and Letter of Credit (LC).  

“But cash management is rather problematic as the money has to be physically brought from the Indian Reserve Bank to Kathmandu and distributed to the people in need,” said Thapa.

The export from Nepal is negligible which increased by 3.2 per cent to reach Rs. 6.9 billion in the first month of this fiscal.

NRB report showed that the current account registered a deficit of Rs. 25.38 billion in the first month due to the significant rise in imports. The current account witnessed a deficit of Rs. 5.98 billion in the same period last year.

Similarly, overall BoP remained at a deficit of Rs. 24.77 billion compared to Rs. 3.29 billion last year.

Workers’ remittances increased 33.1 per cent to Rs.73.95 billion compared to a growth of 7 per cent in the same period of the previous year.

Published in The Rising Nepal daily on 30 September 2018.