Despite a slowdown in economic activity due to a prolonged Tarai unrest and India-imposed trade blockade, the country’s foreign exchange holding can finance merchandise imports for 23.4 months, and merchandise and services imports for 18.4 months, according to the latest macro-economic report of the central bank.

The gross foreign exchange reserves increased 12.5 percent to Rs926.79 billion as of mid-November from Rs823.87 billion as of mid-July, according to the Nepal Rastra Bank’s (NRB) report. The reserves had increased by 2.4 percent in the same period a year ago.

With imports shrinking, the trade deficit has come down by 37.8 percent to Rs140.04 billion against a 26.1 percent rise in the same period last fiscal. The report shows the deficit with India, China and other countries narrowed down by 42.1 percent, 20.6 percent, and 36 percent, respectively.

How badly Nepal’s foreign trade has been affected by the Tarai unrest can be gauged by the fact that exports and imports from the country’s main customs point, Birgunj, declined by 54.2 percent and 59.1 percent, respectively, in the first four months of the fiscal year. Exports dipped to Rs2.53 billion from Rs5.51 billion over the review period.

The good news, however, is the Balance of Payments (BoP) situation has remained comfortable as a result of increased remittance inflow. Remittance increased by 19.4 percent to Rs215.39 billion in the review period. The BoP surplus has reached Rs83.88 billion compared to Rs6.18 billion a year ago. The government’s revenue mobilisation dropped 19.4 percent to Rs92.57 billion, against a rise of 21.8 percent in the corresponding period last year.

Contraction in imports and slowdown in economic activities due to disturbances at southern customs points led to a decrease in VAT, customs revenue, excise duty as well as non-tax revenue mobilisation. The income tax, however, increased 14.9 percent.