Authorities tighten the rules to limit foreign currency outflowMove comes amid dipping foreign exchange reserves and soaring imports.
Considering the diminishing foreign exchange reserves, falling remittances and rising imports, the government has started tightening rules to limit the outflow of foreign currency.
The Department of Immigration has reduced the minimum foreign exchange amount Nepali citizens travelling abroad need to carry with them to $500 from $1,000. But the minimum amount for those—both workers and tourists—travelling to Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, the United Arab Emirates, Malaysia, Thailand and South Asian nations has been reduced further—to $250.
“Earlier, Nepalis travelling abroad were required to show [to immigration officials at the airport] they had at least $1,000 with them,” said Jhanka Nath Dhakal, spokesperson for the Department of Immigration. “Now the amount has been reduced as per the request of the Nepal Rastra Bank.”
Although the central bank allows Nepali citizens travelling abroad to buy a maximum of $1,500 from banks, most Nepalis usually buy foreign currency less than the maximum limit.
Officials at the central bank said they recommended the government reduce the minimum threshold of foreign currency for Nepali travellers after sensing growing misuse of foreign exchange.
‘Even migrant workers have been sent to work abroad on tourist visas because tourists are allowed to carry more US dollars,” said an official at the central bank on condition of anonymity because he was not authorised to speak to the media. “Some unscrupulous recruitment agents do this because migrant workers on work visas cannot take along more than $200 while tourists can carry more.”
According to the official, such a trend has created suspicion if migrant workers are being used to siphon off foreign currency as well as to import gold.
Nepal's bullion market started off the fiscal year 2021-22 by importing Rs3.17 billion worth of gold in the first month [mid-July to mid-August], which is more than 900 times what they imported in the same period of the last fiscal year.
Imports of the yellow metal had almost come to a dead stop after Nepal declared a lockdown in March 2020 to prevent the spread of the coronavirus.
During the period mid-July to mid-August, the first month of the fiscal year 2020-21, gold imports sank to a historic monthly low of Rs3.47 million.
Import of gold had put pressure on the foreign exchange reserve.
Nepal’s foreign exchange reserves suffered a decline of 3.2 percent to Rs1,353.82 billion in a month from mid-July to mid-August as the country’s imports have surged and remittances have dipped.
The inflow of remittances, the largest source of foreign currency reserves, dropped by 18.1 percent to Rs75.96 billion in the review period in contrast to an increase of 23 percent during the same period last fiscal year.
Imports surged to a high of Rs150.73 billion in a single month putting pressures on foreign exchange reserves.
Besides lowering the minimum foreign currency exchange threshold, the Department of Immigration has also made it clear that it would give immigration clearance only if foreign currency has been bought from commercial banks. Earlier, travellers were allowed to buy foreign currency also from development banks and private sector money exchange companies.
“From now on any foreign-bound Nepali wishing to buy foreign currency should present themselves in person in banks and also show the source of income,” said Dhakal.
Officials at the central bank said they are concerned about a possible dip in foreign exchange reserves.
“There are also proposals for reducing the maximum limit of foreign currency foreign-bound Nepalis are allowed to buy from banks,” said the official. “Our assessment is that the current drop in foreign exchange reserves is a temporary phenomenon. But we are closely watching the evolving situation.”
Besides the new rules set by the immigration department, the Ministry of Industry, Commerce and Supplies has halted licence issuance to traders for importing betel nut, peas, peppercorn and dried dates this fiscal year. Businesses and firms are allowed to import these products in limited amounts after the government fixes quota on the imports.
In March 2020, the government had banned the import of these items to save foreign exchange fearing a dip in remittance income amid the Covid-19 pandemic.
After a marginal 0.5 percent drop in 2019-20, Nepali migrant workers sent home Rs961.05 billion in the last fiscal year 2020-21, ending mid-July, a record-high money transfer to Nepal since Nepalis started to look for overseas employment more than two decades ago. The amount grew 10 percent year on year.
In March this year, the government allowed the import of these items until mid-July by setting quantitative limits for each item. The quota for peas was determined at 1,225,290 tonnes, 227,270 tonnes for betel nut, 41,995 tonnes for dried dates and 140,082 tonnes for peppercorn.
But in the current fiscal year, neither import licences have been issued nor the quota fixed for the items. And last week, the Department of Commerce, Supplies and Consumer Protection wrote to the central bank not to provide traders any foreign currency for the import of these items.
Issuing a notice on Sunday [October 3], the central bank, as per the request of the department, instructed commercial banks not to provide any foreign currency for the import of these items.
“Since the government has not issued import licences for these items nor fixed import quotas, we have, as per the request of the Department of Commerce, written to the banks not to issue foreign currency for importing these items,” said Dev Kumar Dhakal, spokesperson for the central bank. “This is a sensible move in the context of depleting foreign exchange reserves.”
But a senior official at the Ministry of Commerce said there is no connection between their fixing no quota for the items and the country’s foreign exchange situation.
“We haven’t fixed the quotas because we haven’t received import applications from firms,” said Narayan Prasad Regmi, spokesperson for the Commerce Ministry. “We will determine the quota once we receive applications for importing the items.”