NRB to tighten measures on use of foreign currencies amid worsening BoP

Kathmandu / Sept 29: Nepal Rastra Bank (NRB) has started taking stern measures on the use of foreign currencies, citing the depleting foreign exchange reserve triggered by the worsening balance of payments (BoP) situation.

According to NRB officials, the central bank called on the bankers on Tuesday and asked them not to provide foreign currencies worth more than US $ 200 in hard cash to their clients visiting abroad. “The bankers have been asked to extend card facilities to their clients who need an amount more than the prescribed limit,” said an NRB source.

As of now, NRB has allowed an individual bound for foreign employment to carry US $ 200. The limit is $ 1,500 for a person going to foreign land on a tourist visa. However, the banks have been asked not to provide the amount in cash despite the legal provision.

The bankers said the central bank could have taken the measures after it came under pressure to manage the depleting reserve of the foreign currencies. According to the NRB records, Nepal recorded a negative BoP worth Rs 38.75 billion in the first month of the current fiscal year in contrast to a surplus of Rs 51.46 billion during the review period in the last fiscal year.

Likewise, the current account, one of the main components of BoP that shows the current cash flow situation of a country, also went into a deficit of Rs 47.90 billion on the back of a downswing in remittance inflows compared to the soaring import expenses. Remittance inflows decreased 18.1 percent to Rs 75.96 billion in the review period in contrast to an increase of 23.0 percent in the same period last year.

Apart from remittance, the other macroeconomic indicators like merchandise trade balance, service trade and net service payment were also dismal as of mid-August this year. The merchandise imports increased 75.7 percent to Rs 150.73 billion, resulting in a wide trade deficit of Rs 129.97 billion.

Likewise, the service trade of the current account also turned pathetic in the review period. The country’s net service income stood at a deficit of Rs 10.12 billion, upped from the deficit amount of Rs 3.09 billion. There was a massive surge in travel payments, which increased 217.9 percent to Rs 5.12 billion. This included a payment of Rs 3.47 billion in education.

Amid the worsening BoP situation, the country’s foreign exchange reserves declined 2.8 percent to US $ 11.42 billion. The amount now allows the landlocked country to purchase goods for only 9.3 months while it will be sufficient to settle payments of goods and services for only 8.3 months.

According to economists, the heavy fall in foreign currency reserves along with a downswing in remittance has been creating a challenge at an alarming rate for the import-based country. Courtesy: Myrepublica