The government has extended an 81-day-old import ban on 10 types of goods for another one and a half months, citing lack of improvement in the country's foreign currency reserves.

The entry of mobile sets costing more than $300, motorcycles with a capacity of over 150 cc, liquor, tobacco, diamonds, television sets larger than 32 inches, automobiles, toys, playing cards and snacks, which have been designated to be luxury items, has been disallowed since April 26.

The embargo has been lengthened till August-end as per a notice published in the Nepal Gazette on Sunday.

Market insiders say the extension would only benefit certain businessmen and spur market distortion.

The import ban has also raised concerns among Nepali traders who are in the process of stocking up on inventory for the Dashain and Tihar shopping season in September.

Merchants normally start importing stock two months in advance for Nepal's biggest festivals.

“The ban which has been extended till August 30 will hit festive sales of automobiles,” said Dhurba Thapa, president of the Nepal Automobile Dealers’ Association. The delivery of imported vehicles takes nearly three months after the letter of credit is opened, according to him. “The decision is causing worry to everyone.”

Thapa said that international automobile makers are losing trust in Nepali traders and banks too.

Around 50 percent of the annual automobile sales take place during the Dashain and Tihar shopping season as dealers offer schemes and discounts, Thapa said. Would-be bike buyers wait for the festive season to take advantage of the sales discounts, he said.

According to the Department of Customs, Nepal imported 257,636 motorcycles worth Rs25.59 billion in the first 11 months of the last fiscal year. Automobiles worth Rs93.64 billion entered the country during the review period.

Experts say the government has utterly failed to revive the economy. People are travelling abroad in droves due to the lack of employment opportunities in the country.

Tens of thousands of farmers across the country are facing shortages of chemical fertilisers. Inflation is rising to double digits. The government’s capital expenditure slowed to a near all-time low of 57.23 percent.

There is currently no dedicated finance minister in the country. Janardan Sharma resigned as the finance minister on July 6 after charges that he invited outsiders to tweak tax rates on May 28, a day before he presented the budget in Parliament. A parliamentary probe committee, formed hours before Sharma resigned, is looking into the allegations.

With none of the economic indicators looking good, the government’s move to restrict import will create market distortion, insiders say.

“Nepal is not North Korea. Nepal has agreements with the World Trade Organisation and South Asian Free Trade Area and other international trade groups and has to follow discipline,” said trade economist Posh Raj Pandey. “Banning goods is not a solution to the problem.”

Pandey, chairman of South Asia Watch on Trade, Economics and Environment, said the import ban was a violation of Nepal’s international commitments.

“Unless the International Monetary Fund says there is a problem in the balance of payments, Nepal cannot impose restrictions on imports.”

According to Thapa, the government has banned the import of motorbikes in the range of 150 cc to 200 cc capacity when demand for these models is the highest and grows further during the festival season.

“The ban will be in place until August 30. Even if it is lifted on September 1, traders will have no time to open letters of credit to import goods. There is no meaning in importing goods after the festival.”

Nepal’s annual import bill in the last fiscal year ended Saturday has been expected to reach close to Rs2 trillion, largely due to a steep rise in global prices spurred by volatile oil prices and the Russia-Ukraine war.

In April, the government announced a complete ban on the import of mobile sets worth more than $600 and motorcycles with a capacity of over 250 cc.

Mobile imports in the first 11 months of the last fiscal year were valued at Rs39.13 billion. Nepal imported motorcycles worth Rs26.66 billion during the review period, according to the Department of Customs.

“The ban on smartphones costing more than $300 will fuel the grey market,” said Sanjay Agrawal, vice-president of the Mobile Phone Importers' Association.

“The earlier decision to ban mobiles costing more than $600 had already impacted the market. The latest move would destroy the market and business confidence.”

Demand for mid-range smartphones costing between Rs30,000 and Rs45,000 is high.

“The ban will hit the government’s revenue collection. It will increase black marketeering too,” Agrawal said.

According to the Department of Customs, Nepal imported 5.58 million mobile sets worth Rs38 billion in the first 11 months of the last fiscal year, up from Rs34.14 billion in the previous corresponding period.

As per the notice banning imports, the move is intended to safeguard the country’s external financial position and foreign exchange stash that has been receding at a fast rate, posing a potential threat to the economy.

But experts and consumers say the decision is ill advised as it will encourage market cartels. They have described the government decision to ban goods as a move to hide its shortcomings and lack of action to revive the ailing economy.

“The list of banned goods has been influenced by cartels, protectionists, traders sitting on huge stocks and those who thrive on smuggling. #irrationality rules,” tweeted Sujeev Shakya, founder chair of the Nepal Economic Forum, a Kathmandu-based private economic policy and research institution.

As of the first 11 months of the last fiscal year 2021-22 ended July 16, foreign exchange reserves had sunk by 19.6 percent, from $11.75 billion in mid-July 2021 to $9.45 billion in mid-June 2022, according to Nepal Rastra Bank.

Central bank data show there has been a slight improvement in remittance inflows, the largest source of foreign exchange for the country.

“As key sources of foreign exchange such as remittance, export, tourism and foreign aid have not helped the economy as expected, the government currently has no other option,” said senior economist Keshav Acharya.

Acharya said that the country had not received remittances in the amount expected despite a massive surge in Nepali migrant worker departures. Remittance inflows rose by 1.5 percent to $7.51 billion in the first 11 months of the last fiscal year.

“It is a time of urgency, we have to take all measures to maintain adequate foreign exchange reserves to prevent the country from heading in the direction of Sri Lanka,” said Acharya.