Money
Move to raise gold import quota will ‘worsen Nepal’s trade deficit’
The government has decided to raise the import quota of gold by additional 5 kg per day to 25 kg, raising alarm bells about the country’s trade deficit which has ballooned out of control due to excessive rise in import bills.The government has decided to raise the import quota of gold by additional 5 kg per day to 25 kg, raising alarm bells about the country’s trade deficit which has ballooned out of control due to excessive rise in import bills.
Last week, the Ministry of Industry, Commerce and Supplies had given Nepal Rastra Bank (NRB) the go-ahead to increase the daily quota on import of the precious yellow metal to 25 kg from 20 kg earlier.
Rabi Shankar Sainju, spokesperson at the Ministry, said the decision to increase gold quota was taken due to soaring domestic demand. With festivals like Dashain and Tihar round the corner, the demand for gold is surging.
“As the payment for gold import must be settled in US dollar, it will worsen the balance of payments (BoP) situation of the country,” said Economist Madan Kumar Dahal. “However, the decision could help control the possible smuggling of gold when demand soars during festival season.”He said that the move to increase the quota is good for the short term but could create negative consequences in the long term.
According to the Current Macroeconomic and Financial Situation of Nepal released by the NRB, the BoP deficit widened to Rs24.77 billion in the mid-July to mid-August period, the first month of the current fiscal year. In the same period last fiscal year, Nepal’s BoP deficit stood at Rs3.29 billion.
Trade balance, which is one of the most important components of BoP, is not in favour of the country since a long time due to soaring imports and slow growth in export earnings. In the first month of the current fiscal year, Nepal’s imports bill jumped to Rs120 billion against export earnings of Rs6.92 billion. With the rise in negative BoP balance, the foreign exchange reserve in the country also declined by 0.9 percent to Rs1,092.87 billion in the first month of this fiscal year. It was Rs1,102.59 billion a month ago.
The NRB data shows that the country imported Rs32 billion worth of gold in the last fiscal year, up 17 percent. “Keeping in mind the possible adverse impact on the BoP, the Ministry has raised the gold quota only up to mid-December,” Sainju said. “Although the central bank had asked to increase quota by additional 10 kg a day, we denied the proposal, citing the country’s BoP position.”
The NRB officials said that the central bank has revised the quota amid pressure from gold jewellers. “NRB’s next board meeting is set to approve the decision to raise import quota of gold,” a NRB source said. NRB began imposing a quantitative restriction on gold imports in 2010 after massive imports caused a huge BoP deficit. Nepal imported gold worth Rs 41.63 billion in fiscal 2009-10.