External sector continues to worsen as BoP slips to deficit of Rs 68 billion

Published On: June 20, 2019 04:30 AM NPT By: Republica  | @RepublicaNepal

KATHMANDU, June 20: The external sector position of the country continues to deteriorate in the tenth month of the current Fiscal Year 2018/19 with the balance of payment (BoP) slipping into a deficit of Rs 68.2 billion.

The BoP refers to the record of all international trade and financial transactions made by a country's residents.

The country has been facing BoP deficit from the last fiscal year, owing mainly to the rise in the current account deficit and weak financial inflows. Such deficit was Rs 18.93 billion in the corresponding period of the last Fiscal Year 2017/18, according to the Nepal Rastra Bank.

Releasing the 'Current Macroeconomic and Financial Situation of Nepal (Based on Ten Months' Data of 2018/19)' on Wednesday, the NRB painted a worsening picture of the external sector.

According to the NRB, the current account registered a deficit of Rs 221.4 billion in the review period. Such deficit was Rs 192.05 billion in the same period of the previous year.

In the review period, Nepal received Rs 9.47 billion in foreign direct investment (FDI) in ten months of the current fiscal year, down from Rs 14.15 billion in the corresponding period of the last fiscal year.

While the FDI has dropped in the review period, the remittance inflow, a major source of foreign currency earnings, jumped 19.6 percent to Rs 725.3 billion. The remittance inflow has been rising despite a significant fall in the number of Nepali workers going abroad for the employment. The NRB data shows that the number of Nepali workers heading abroad for employment declined 38.6 percent in the same period compared to a fall by 6 percent in the corresponding period of the last fiscal year.

However, the growth in remittance was insufficient to cover the large trade deficit of the country. The NRB data shows that the trade deficit widened 19.7 percent to Rs 1,099.6 billion in ten months of 2018/19.

According to the NRB data, the foreign exchange reserves (forex) fell to $9.42 billion in mid-May this year from $10.08 billion in mid-July last year. The foreign exchange reserve is depleting in recent months as the higher external deficit was partly financed by drawing down international reserves. However, central bank officials say that there is no reason to worry about the depletion so far as the international reserves still remain at a comfortable level and can cover eight months of merchandise and services imports.

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