#Depleting Foreign Currency Reserves

Nepal gets some respite as pace of BOP negative sees a decline

Published On: March 13, 2022 06:30 AM NPT By: Republica  | @RepublicaNepal

KATHMANDU, March 13: Nepal’s worsening Balance of Payments (BoP) stood at Rs 247.03 billion in the first seventh month of the current fiscal year, which shows a declining pace in the country’s worsening external macroeconomic indicator compared to the previous months.

This has given some respite to the landlocked country which is undergoing heavy drain out of the foreign currencies in the past few months.

The seven month report on Current Macroeconomic and Financial Situation unveiled by Nepal Rastra Bank (NRB) on Friday showed that Nepal faced the aforementioned amount in BoP deficit in the review period against a surplus of 97.36 billion in the same period last year. Despite having negative BoP as of mid-February, the pace of a drop of BoP has slowed in the seventh month.

The NRB records show that Nepal’s BoP deficit in the first four months of the current fiscal year was Rs 150.38 billion. In the first five months, it went to Rs 195.01 billion, which nosedived further to Rs 241.23 billion during one month of mid-December 2021 and mid-January 2022.

However, during one month of mid-January and mid-February, Nepal faced a net drain out of its foreign currency by only Rs 5.80 billion. A drop in BoP amount means the country is sustaining an increasing pressure to manage the foreign currency to carry out transactions with other countries.

According to an official at the Ministry of Finance, the government measures to curb imports of luxury items has resulted in the pace of declining BoP deficit. Recently, the government has made it mandatory for importers to maintain up to 100 percent cash margin on import of luxury goods and reduced the quota of gold imports from 20 kg to 10 kg daily.

Additionally, a decline in the falling rate in remittance inflow has also helped to slow the pace of the BoP deficit. According to the NRB records, the remittance inflows decreased by 4.9 percent to Rs 540.12 billion during the review period. As of the first six month, remittance inflows fell by 5.5 percent.  

A correction in BoP has given some respite to the country’s depleting foreign currency as well. Nepal now has foreign currency reserves sufficient to fund merchandise and services imports of 6.7 months, up from the adequacy to finance the imports of 6.6 months until the previous month.  


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