ECONOMY BOP Surplus

At a time when all other economic indicators are going down, Nepal has recorded a surplus BOP due to increased remittances

Sept. 25, 2020, 11:13 a.m. Published in Magazine Issue: VOL. 14 No. 04, September 18, 2020 ( Ashwin 2, 2077) Publisher: Keshab Prasad Poudel Online Register Number: DOI 584/074-75

At a time when almost all economic indicator of Nepal are performing badly, there is good news as well. With the departure of Dr. Yubaraj Khatiwada from Ministry of Finance after serving two and a half years, there is no one in the driving seat to steer the national economy.

As Nepal’s import continues to decline due to lockdown, Balance of Payments (BOP) has recorded a surplus of Rs.282.41 billion in the review year. There was a deficit of Rs.67.4 billion in the previous year.

Gross foreign exchange reserves increased by 34.9 per cent to Rs.1401.84 billion in mid-July 2020 from Rs.1038.92 billion in mid-July 2019.

According to annual macroeconomic update of fiscal year 2019-20 of Nepal Rastra Bank, domestic credit expanded by 13.6 per cent in the review year compared to a growth of 21.1 per cent in the previous year. Claims on private sector increased by 12.6 per cent in the review year compared to a growth of 19.1 per cent the previous year.

According to the NRB report, the current account deficit — a measurement of a country’s trade where the value of the goods and services it imports exceeds the value of the products it exports — decreased 87.9 per cent to Rs 32.06 billion in the review year from Rs 265.36 billion in the previous year.

In the external sector, merchandise exports inched up by 0.6 per cent to Rs 97.71 billion in fiscal 2019-20 compared to an increase of 19.4 per cent in 2018- 19. Meanwhile, merchandise imports decreased by 15.6 per cent to Rs 1,196.80 billion against an increase of 13.9 per cent in the previous fiscal.

Consequently, the trade deficit narrowed down 16.8 per cent to Rs 1,099.09 billion in the review year. Such deficit had expanded 13.5 per cent in the previous year.

Capital transfer decreased by 8.1 per cent to Rs.14.21 billion and net foreign direct investment (FDI) increased by 49.1 per cent to Rs.19.48 billion. In the previous year, capital transfer and net FDI amounted to Rs.15.46 billion and Rs.13.06 billion respectively.

In the meantime, Nepal received Rs 100.16 billion in remittance, an all-time high during mid-June to mid-July—the last month of the last fiscal year—that boosted the overall earnings.

Remittance inflows dropped by a marginal 0.5 percent in the last fiscal year that ended mid-July, despite popular labour markets in the Gulf Cooperation Council countries and Malaysia being severely impacted by the Covid-19 pandemic that left millions of expat workers with no choice but to pack their bags and leave.

According to the Nepal Rastra Bank’s latest annual macroeconomic report, Nepali migrant workers sent home Rs 875.03 billion in the last fiscal year. The report shows that Nepal received an all-time high remittance of Rs 100.16 billion during the last month of the fiscal year (mid-June to mid-July) that boosted the overall remittance earning.

The central bank said that the number of Nepali workers seeking approval for foreign employment decreased by 20.5 percent to 193,945 individuals in the review period. Similarly, the number of Nepali workers (renewed entry) seeking approval for foreign employment decreased 34.7 percent to 177,980 individuals in the last fiscal year.

Although remittances supported maintaining Nepal’s BoP, other economic indicators are going down further. The coming days are challenging for Nepal in all economic fronts.

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