'Quota revision due to crackdown on gold smuggling, increased demand'
KATHMANDU, Jan 18: At a time when the balance of payment (BoP) position of the country is weak, the government is preparing to raise import quota of gold.
The decision to ease import restriction of the yellow metal comes in the wake of rising demand fuelled by cultural reason and government crackdown on illegal import of gold, putting additional pressure on the external sector of the country's economy.
Ravi Shankar Sainju, the spokesperson for the Ministry of Supplies (MoS), which authorizes the import limit, told Republica that the ministry will take the decision on this matter soon. “We are studying about the supply and demand situation of gold in the market. The government will take a needful decision soon,” he said, adding that quota will be reduced once the demand pressure eases.
Earlier last month, the Nepal Rastra Bank (NRB) had recommended to the ministry to increase daily gold import quota by five kilograms. The central bank recommended to the MoS to increase maximum limit for the import of precious yellow metal to 25 kg from existing 20 kg per day.
According to an official at the Foreign Exchange Department of the NRB, the central bank decided to recommend to the government for raising the import quota of gold keeping in view the rising demand for the yellow metal in the wake of wedding season. “Considering the rise in seasonal demand, we recommended to the Ministry of Supplies to increase the gold import quota nearly a month ago. But have not heard from the ministry yet,” the official told Republica.
The government, based on the central bank's recommendation, revises the cap on gold import by commercial banks.
The central bank generally makes recommendation to increase import quota during festive seasons like Teej, Dashain and Tihar when demand for gold goes up as Hindu Nepalis purchase gold jewelries.
Though the central bank officials cite seasonal demand for their decision to recommend revision in gold import quota, observers point out police crackdown on gold smugglers in recent time for the rise in import quota.
“When the law enforcement agencies intensify surveillance at the porous borders of both neighboring countries, smugglers get disappeared at least for some time. This is when the demand for gold imported through legal channel rises,” a banker told Republica.
At times, banks, who are authorized to import gold from international market, struggle to sell even 20 kg of gold that they import. They blame the supply of gold through illegal channel for low demand for gold imported by them.
The decision to ease import restriction is likely to put pressure on the BoP position of the country which slipped into deficit in the first five months of Fiscal Year 2017/18. BoP summarizes transactions between a country and the rest of the world, and the account classifies transactions under two headings -- capital account and current account.
According to the NRB, the overall BoP remained at a deficit of Rs 9.27 billion in the first five months of the current fiscal year in contrast to a surplus of Rs 28.78 billion in the same period of the previous year.
The central bank will have to burn through an additional quarter million dollars of foreign currency reserve per day to finance import of the increased quota of gold. Economists say that the unproductive import of commodities like gold only worsens the trade deficit of the country which is widening at a high pace.