Nepal needs to attract more foreign aid, including loans and grants, in the coming days to offset the pressure created by rapid deceleration in remittance income and ensure the country’s foreign exchange (forex) reserve is not badly hit. Also, the country needs to introduce policies to reduce imports to curb outflow of foreign currency from the country.

These views were expressed by newly appointed Finance Secretary Shankar Prasad Adhikari and former finance secretary Shanta Raj Subedi at an interaction organised by the Society of Economic Journalists-Nepal on Monday. 

Nepal witnessed a balance of payments (BoP) deficit of Rs5.9 billion in the first two months of the current fiscal year due to slow growth in remittance income and surging import bills. A BoP deficit of Rs5.9 billion means outflow of money from Nepal’s economy surpassed inflows by Rs5.9 billion. One of the reasons for the BoP deficit was minimal growth in remittance income. Nepal’s remittance income went up by mere 0.7 percent to Rs115.6 billion in the two-month period between mid-July and mid-September. Nepal’s remittance income growth rate has been squeezing over the months with the fall in the number of outbound Nepali workers. Similarly, inflow of grants to Nepal, another source of foreign income, fell by 12.3 percent to Rs7.8 billion in the two-month period. 

At the same time, Nepal’s imports went up by 11 percent to Rs165.4 billion in the first two months of the current fiscal year, while exports went up by a marginal 3 percent to Rs13.6 billion. As a result, the country’s merchandise trade deficit widened by 11.8 percent to Rs151.8 billion in the two-month period. Finance Secretary Adhikari said Nepal has to devise specific strategies to reduce imports to address the problem. 

“As we are unable to increase exports due to a number of constraints, special focus should be given to attract foreign assistance,” Adhikari said. “In addition, rise in production of hydroelectricity could help the country cut back on petroleum imports. This could reduce the outflow of money from the economy.”

According to the central bank, Nepal imported petroleum products worth whopping Rs18 billion in the first two months of the current fiscal year. The record of Nepal Oil Corporation also shows that the demand for petroleum products has been growing at the rate of 15-20 percent annually. Former finance secretary Subedi, who retired from the civil service two weeks ago, echoed Adhikari. According to Subedi, Nepal can attract more foreign assistance by expediting the pace of construction of national pride projects and post-earthquake reconstruction. 

Subedi also stressed on the need to improve agricultural productivity and curb illegal exports of agricultural products from border areas. According to him, illegal export of rice from Nepal, for instance, creates a shortage, which is again fulfilled through imports.