Forex reserves enough for 21 months’ importsIf the current trend of sluggish import continues, the foreign exchange reserves can finance imports of about 21 months, the Nepal Rastra Bank (NRB) has said.
If the current trend of sluggish import continues, the foreign exchange reserves can finance imports of about 21 months, the Nepal Rastra Bank (NRB) has said.
Gross foreign exchange reserves increased 8.3 percent to Rs892.07 billion as of mid-October 2015 from Rs823.87 billion as of mid-July 2015 as remittance continued to soar while imports slumped as a result of India-imposed trade embargo.
In the first three months of the fiscal year, imports dropped 31.9 percent to Rs130.49 billion from Rs191.72 billion in the same period a year ago.
“The current scenario of the foreign exchange reserves sustaining merchandise imports of 20.8 months won’t remain the same if normal imports resume,” said Nara Bahadur Thapa, chief of NRB’s research department.
At the end of 2014-15, the foreign exchange reserves were enough for finance imports of 13 months.
Internationally, there is a practice of maintaining foreign exchange reserves enough for at least three months’ of imports, but Nepal has been recognising the necessity of maintaining the reserves for at least six months’ imports.
According to Thapa, even during normal situation, having larger foreign exchange reserves is not good as it suggest the state’s low capacity to mobilize foreign exchange in economic development.
As remittance inflow has been surging against an import slump, the reserves continued to soar, according to NRB. The remittance jumped 24 percent to Rs166.42 billion in the review period.
“Remittance, not tourism earnings or exports income, is the main source of foreign exchange. It gives some comfort, but also suggests the availability of foreign exchange has not been supportive to economic growth,” said Shankar Sharma, an economist. He said foreign exchange is also not being used to import essential imports to support the growth such as energy and raw materials. “This suggests the economy is facing a crisis,” he said.
In the first three months, petroleum imports slumped by 57.8 percent, according to the Trade and Export Promotion Centre (TEPC). The imports decreased to Rs1.53 billion in the third month of the fiscal year from Rs6.86 billion in the first month.
Industries in Tarai have largely remained closed due to long-running banda, while hill-based industries have not been operating at full capacities due to the shortage of raw materials.
The government has estimated about 2 percent economic growth for this year. The rate may go further down if the current situation does not improve.
The central bank has, however, estimated negative growth of 1 percent if the India-imposed trade embargo remains until mid-January.