Nepal recorded a BoP deficit of Rs 38.75 billion during mid-July and mid-August

Worsening macroeconomic indicator is posing a threat for the import-based country: experts

KATHMANDU, Sept 24: Nepal recorded a negative Balance of Payments (BoP) worth Rs 38.75 billion in the first month of the current fiscal year, exerting pressure on the foreign currency reserve held by the country.

According to the ‘Current Macroeconomic and Financial Situation of Nepal’ released by the Nepal Rastra Bank (NRB) on Thursday, the country’s BoP was in a surplus of Rs 51.46 billion during mid-July and mid-August in the last fiscal year. The main macroeconomic indicator was also negative in the last two years.

The BoP records a country’s financial transactions with the rest of the world under three subheadings — current account, capital account and financial account. It is the major indicator to show a country’s net balance in terms of foreign currency reserves.

In the review period last year, Nepal had a current account surplus of Rs.24.89 billion. However, this year the current account went into a deficit of Rs 47.90 billion on the back of a downswing in remittance inflows compared to the soaring import expenses.

Remittance inflows decreased 18.1 percent to Rs 75.96 billion in the review period in contrast to an increase of 23.0 percent in the same period last year. Similarly, the merchandise imports increased 75.7 percent to Rs 150.73 billion, resulting in a wide trade deficit of Rs 129.97 billion.

Likewise, the service trade of the current account also turned pathetic in the review period. The country’s net service income stood at a deficit of Rs 10.12 billion, upped from the deficit amount of Rs 3.09 billion. There was a massive surge in travel payments, which increased 217.9 percent to Rs 5.12 billion. This included a payment of Rs 3.47 billion in education.

Amid worsening BoP, the country’s foreign exchange reserves declined 2.8 percent to US $ 11.42 billion. The amount now allows the landlocked country to purchase goods for only 9.3 months while it will be sufficient to settle payments of goods and services for only 8.3 months.

According to economists, the heavy fall in foreign currency reserves along with a downswing in remittance has been creating a challenge at an alarming rate for the import-based country. Currently, Sri Lanka has been facing an economic problem mainly due to draining out of the foreign currency stock.