Recovery in remittance income fails to lift BoP
The country’s remittance income has finally made a recovery, recording a growth of 1.7 percent in the seventh month of the current fiscal year. The first positive remittance income growth registered since mid-November, however, could not prevent current account and balance of payments (BoP) from slipping into deficit.
The country saw remittance inflow of Rs401.4 billion in the first seven months of the current fiscal year, up from Rs394.6 billion recorded in the same period a year ago, says the latest Macroeconomic Report of the Nepal Rastra Bank (NRB), the central bank.
“Remittance growth rate was very moderate that these kinds of fluctuations take place every now and then. But factors such as higher fund transfers from Kuwait, where Nepalis were not being able to remit funds, may also have played a role,” said Nara Bahadur Thapa, executive director of the Research Department at the NRB.
Although growth in remittance income, which had fallen for three consecutive months in the current fiscal year from mid-November to mid-January, is good news, it could not lift current account and balance of payments from negative territory. Nepal recorded a current account deficit of Rs141.1 billion in the seven-month period from mid-July to mid-February largely because of surging trade deficit.
The country’s trade deficit widened by 19.4 percent to Rs613.6 billion in the first seven months of the current fiscal year, as imports continued to outpace exports.
Nepal imported merchandise goods worth Rs661.2 billion in the seven-month period, marking a hike of 18.9 percent than in the same period a year ago. Imports went up due to greater demand for petroleum products, machinery and parts, vehicles, gold and polythene granules in the country, says the NRB report.
On the other hand, exports increased by 12.9 percent to mere Rs47.6 billion in the first seven months of the current fiscal year. Some of the Nepali goods that were highly demanded overseas were cattle feed, jute goods, vegetable ghee, thread and readymade garments, while exports of juice, cardamom, GI pipes, woollen carpet and copper wire rods fell.
The country’s inability to boost exports has hit the country’s BoP, which recorded a deficit of Rs18.3 billion in the first seven months of the current fiscal year. A BoP deficit of Rs18.3 billion implies the outflow of money from the economy surpassed inflow by Rs18.3 billion.
This prompted the country’s foreign exchange reserves to shrink by 2.7 percent to $10.2 billion in the first seven months of the current fiscal year.
“A loss in the accumulation of international reserves on accounts of a deficit in overall balance of payments along with a significant rise in current account deficit has contributed to tighter financial conditions,” says the NRB report.
Although the existing foreign exchange reserves are sufficient to cover merchandise imports of over 11 months, a shrinking reserve does not bode well for a country like Nepal which imports most of the capital and consumer goods from overseas.
One way to expand foreign exchange reserves, at a time when remittance inflow has remained volatile, is to lure more foreign direct investment (FDI). FDI inflow did go up by almost 89 percent in the first seven months of the current fiscal year, but its volume stood at mere Rs14.3 billion, which is not even 1 percent of the country’s gross domestic product.
Source: The Kathmandu Post