The Road To Recovery

 The government recently lifted the ban on the imports of luxury goods including cars, motorcycles of over 150 cc engine capacity and mobile phones costing over US$ 600. In April this year, in the wake of the severe external sector pressure amidst fast depleting foreign currency reserves, the government had imposed a ban on the imports of 10 luxury items – the list also comprised of tobacco, snacks, large television sets, diamonds, toys and cards but embargo on these items were removed on August 30. 

However, there has been just a nominal improvement in the foreign currency reserves in the first four months of the current Fiscal Year 2022/23. According to Nepal Rastra Bank, the central bank of the country, the gross foreign exchange reserves increased by 2.5 per cent to Rs. 1,246.27 billion in mid-November 2022 from Rs. 1,215.80 billion in mid-July this year which is an increase of 2.5 per cent. But in US dollar terms, that rise is just 1 per cent. Positively, it has provided a short-term relax with an upward trajectory for the past three months primarily due to the restrictions imposed on the import of luxury goods. 

Meanwhile, the central bank is confident that the increased inflow of the remittances, which rose by above 20 per cent (10.8 per cent in US Dollars terms) in the first four months compared to a decline of 7 per cent in the last fiscal year, could help in providing the much-needed foreign currencies for the import-based economy that exports goods of only Rs. 11.21 in foreign trade of Rs. 100. Likewise, the number of migrant Nepali workers going abroad for employment has more than doubled in the period of one year following the relaxation in the COVID-19 pandemic situation. 

Another hopeful event is happening at current account side which witnessed a significant improvement in a year's gap – current account deficit has decreased to Rs. 35.4 billion in mid-November 2022 from Rs. 220.9 billion a year earlier. And, the Balance of Payment (BoP) is at a surplus of Rs. 20.03 billion this year against a deficit of Rs. 150.38 billion last fiscal year. All these developments signal an improved economic condition which witnessed a severe challenge in the immediate aftermath of the COVID-19 pandemic. Now that the economic activities have surged and businesses have expanded their productions and supplies have soared to meet the inflated demands primarily backed by the savings made during the pandemic, the days ahead look encouraging towards recovery. 

Meanwhile, the bank rate has also come below 7 per cent now from around 9 per cent some months earlier which indicates an ease in the liquidity situation in the financial system. To maintain these achievements and control the suspicious use of loaned money, the central bank has issued Working Capital Loan Guidelines, 2022 that demands the businesses and industries to be more transparent and responsible. It also aims at controlling the excessive imports of the luxury goods as well. The government and the NRB should forge close collaboration to implement effective policies and instruments to lead the country to a path of healthy economic growth while the private sector should also support in the good initiatives implemented by the government.

Published in The Rising Nepal daily on 19 December 2022.