Balance Of Payments: In Nepal’s Perspective

The study of Balance of Payments has become a matter of great interest in recent years to businessmen, bankers, statesman and economists.

Aug. 5, 2021, 10:47 p.m.

In a discussion of economic questions even in the non-specialist press many terms are used which until quite recently were used only by economists or others professionally concerned. Does the lay reader attempting to follow national politics or international affairs always understand what the professional really means when he talks about “ Balance of Payments”, “ Gross National Product”, “ Euro- Dollars”, Multiple Exchange Rates” or “ Comparative Costs,” Economic liberalization” Privatization’ “WTO”, “SAFTA”. Nepal has traditionally run large trade and current account deficits, which have been offset by equally large capital account surpluses.

During the post war period, the term “balance of Payments “was become thoroughly familiar to readers of newspapers in all countries. In articles in the press, the balance of payments is often defined in a very simple manner. It may be described, for instance, as a record of a country’s money receipts and payments being the surplus or deficits. Such simple and candid explanations are useful in that immediately provide a common sense notion of what the balance of payments is all about, and even though it is in fact something much more complex, such language provides a good starting point for defining it in more precise terms.

The study of Balance of Payments has become a matter of great interest in recent years to businessmen, bankers, statesman and economists. Just as the financial statement of a bank reveals of a bank its financial position, vis-s Vis foreign countries.In fact, it is so important that balance of payments is considered to be an economic barometer of a country’ health.

It can furnish the key to an understanding of a country’s economic problems. It is of great value in forecasting. Balance of Payments of a country is a systematic record of all economic transactions between the residents of the country and residents of foreign countries. The Balance of Payments includes both visible and invisible transactions.

For the purpose of the balance of payments, as for other economic statistics a country means those individuals and business enterprises, including financial institutions that have permanent associations with a country’s territory, together with the country’s governmental authorities at all levels. As these in balance of payments terminology are called” residents”. Residents include all those economic units whose economic activity is subject to direction and control by national authorities. By the same token, everybody else is Non Resident.

The Balance of Payments is based on a double entry system, which provides for each debit to be matched by a credit. How, then can there be a “Deficit in the balance of payments”? If a deficit or surplus in the balance of payments is composed of selected transactions only, it is important to know what the selection comprises.

As all of us know, foreigners may contribute their labor, capital or managerial skill towards the production of goods and services in Nepal and payment for those factor services leave the domestic system and go into external sector. Let us think of the businessman as an example. He contributes to the overall flow of goods and services in the Nepalese economy and transfers his profits to India. Let us use this example as a general symbol for “factor remuneration to the foreign sector”. The matter has little bit changed after the following of the liberalization of the economy and the deregulation, delicensing and the trade liberalisation.

Although it is encouraging to note the increased level of foreign exchange reserves in the country, it does not make economic senses to keep the reserve idle. Unnecessary holding of foreign exchange reserve will deprive the country of many possible benefits. Therefore, it is becoming increasingly necessary to keep foreign exchange reserve within a certain limit and adopt a comprehensive policy utilizing foreign exchange reserve in excess of the minimum required limit.

Nepal Rastra Bank (NRB) has said that if the third wave of COVID-19 starts, it will add more challenges to the recovery and will continue the concessions given to the epidemic affected areas and businesses. At present, NRB is disbursing refinancing up to Rs 200 billion, five times out of its average fund of Rs 40 billion. It has been made public that the governor will continue it.
NRB has decided to look at issues including loan renewal and restructuring as 'thematic'. The second wave of Covid and the impact of the injunction is to renovate and restructure on the basis of impact to address the problems in the business.
NRB has stated that the rise in prices of petroleum products has put pressure on inflation.

Based on the current economic and financial situation of the country and the data for the eleven months of the Fiscal Year 2077/78, Nepal Rastra Bank (NRB) said that imports increased by 25.7 percent and exports by 37.8 percent. Remittance inflows increased by 12.6 percent in Nepali Rupees and 10.4 percent in US Dollars. The balance of payment is in deficit of Rs. 15.15 billion. Total foreign exchange reserves stood at अर्ब11.71 billion.
Foreign Trade (Eleven Months) On a commodity basis, exports of soybean oil, cardamom, yarn (polyester and others), jute goods, woolen carpets and other commodities increased while exports of palm oil, pulses, zinc sheets, wire and bran declined.
At present, the country's current account deficit has reached Rs 293 billion. The balance of payments has gone into deficit due to high imports. The BOP had a surplus of Rs 282 billion in the corresponding period of the previous year.
The government had banned the import of vehicles worth more than 50,000 US dollar and banned the import of foreign liquor before the floods hit, citing high trade deficits. Quantitative restrictions were also imposed on the import of items such as corn and betel nuts.

Based on the eleven months of imports in FY 2077/78, the foreign exchange reserves of the banking sector will be sufficient to support 11.1 months of imports of goods .

Taking into account the growing trade deficit of the country as a matter of concern and interest, it is necessary to control the import of some commodities, said NRB. In order to reduce the trade deficit and the pressure on the country's balance of payments, it has become necessary and imperative to focus on controlling and replacing imports of luxury and non-essential commodities.

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