NRB paints a bleak picture of economy

Nepal Rastra Bank. Photo: THT/ File

Kathmandu, September 28

Nepal’s economy may face severe headwinds in the coming days, if the latest central bank report is anything to go by, as imports are surging like never before, leading to greater outflow of funds.

Outflow of money from the economy surpassed inflows — which is technically referred to as balance of payments — by Rs 24.8 billion in the first month of the current fiscal despite robust growth in remittance income, as imports of merchandise goods surged by a staggering 54 per cent to Rs 120.6 billion, shows the monthly macroeconomic report of Nepal Rastra Bank released today.

Imports grew massively due to greater demand for aircraft spare parts, other machinery and parts, petroleum products, MS billet, and vehicles and their spare parts, according to the NRB report.

But exports of merchandise goods grew by a mere 3.2 per cent to Rs 6.9 billion in the one-month period. If inflation of 4.2 per cent and weak currency are taken into account, Nepal’s exports in the first month of this fiscal registered a negative growth in real terms.

“The export figure does not look good. We are devising strategies to make corrections,” Revenue Secretary Sishir Kumar Dhungana said.

If exports-import imbalance continues, trade deficit, which stood at 39 per cent of the gross domestic product in the last fiscal year, will further widen, reducing the stock of foreign currency in the country. Robust foreign exchange reserves are required to settle import bills, generate liquidity for banks and facilitate foreign investors to repatriate earnings.

Nepal’s foreign exchange reserves contained $9.8 billion in the first month of this fiscal, down from $10.5 billion in the same period a year ago, adds the report.

Previously, one of the reasons for the imbalance in inflow and outflow of money from the economy was decelerating remittance income. But that is not the case this time. Remittance inflow surged by 33.1 per cent to Rs 73.9 billion in the first month of 2018-19, states the central bank report. Remittance income was last growing at this pace in fiscal year 2015-16, but the boom has since sputtered out following decline in number of outgoing workers.

“Remittance inflow has bounced back following oil price hike, which has improved financial health of companies in the Gulf, one of the major absorbers of Nepali labourers, leading to increment in salaries and benefits of workers,” said NRB Research Department executive director Nara Bahadur Thapa, .

The rebound in remittance income is good news. But considering the demand for imported goods, Nepal must find other foreign income sources. One such source is tourism. But export income from tourism, or money spent by foreign tourists in Nepal, is far less than what Nepalis spend abroad. Nepalis spent Rs 7.6 billion abroad in the first month of the current fiscal compared to Rs 4.4 billion that the country generated from foreigners who visited Nepal in the one-month period.

Another source of foreign income is foreign direct investment, which also fell by 93.6 per cent to Rs 295.7 million in the first month of the current fiscal, show NRB data.

“The only sustainable way to generate foreign currency is to ramp up exports of goods with comparative advantage, tourism products and electricity. But nobody has made sincere efforts towards this end,” said Shankar Sharma, NPC ex-vice chairman.

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