Rebound in remittance inflow fails to prevent BoP from posting deficit

- Post Report, Kathmandu

Oct 22, 2016-

The flow of remittance income rebounded in the first two months of the current fiscal year—albeit this could not prevent the country’s current account and balance of payments from slipping into negative territory.

The flow of money sent by Nepalis working abroad went up by 6.6 percent in the period between mid-July and mid-September from a year earlier to Rs114.7 billion, shows the latest macroeconomic report of the Nepal Rastra Bank (NRB), the central bank. 

This is a significant improvement considering the negative growth of 2.5 percent in remittance inflow in the first month of the fiscal year. 

“Remittance income posted a positive growth in the first two months of the current fiscal year, as Nepalis employed abroad sent more money home to enable their family members of celebrate Dashain, the biggest festival of Hindus in Nepal,” Nara Bahadur Thapa, chief of NRB’s Research Department, told the Post. 

However, it is not known whether the growth is just a blip or will continue in the coming months, as the number of Nepalis leaving the country for employment purpose has lately been falling.

Despite the growth in remittance income, the country’s current account posted a deficit of Rs11.1 billion in the first two months of the fiscal year. The deficit was reported largely because of huge repatriation of dividend and income. Foreigners based in Nepal remitted Rs10 billion in the two-month period, as against Rs9.1 billion recorded in the entire fiscal year of 2015-16, shows the NRB report. 

Also, expenditure of Nepalis travelling abroad jumped 34.1 percent to Rs14.5 billion in the two-month period. Spending made by Nepalis abroad was almost double the income of Rs7.5 billion generated from foreign travellers who visited Nepal in the first two months of the current fiscal year.

Among others, Rs6.3 billion was transferred abroad in the two-month period to cover fees and other expenses of Nepalis studying abroad—up 65.3 percent than in the same period a year ago—while Rs149 billion was exhausted to foot Nepal’s import bills—a hike of 43.4 percent than in the same period a year ago.

While all this money left the country, very little entered the country. Nepal’s exports posted a moderate growth of 7.7 percent in the first two months to Rs13.2 billion and flow of grants slumped 19.4 percent to Rs8.9 billion.

Although one good news in the two-month period was 162.8 percent jump in foreign direct investment to Rs2.2 billion, it could not help the balance of payments (BoP) from posting a deficit of Rs3.5 billion in the first two months of the fiscal year.

As the BoP came under pressure—indicating greater outflow of money from the economy than inflow—the country’s foreign exchange reserve shrank 0.7 percent in mid-September from the level in mid-July when the fiscal year began to $9.7 billion, shows the NRB report.

Gradual fall in stock of this money could create problems in the economy, as import-dependent Nepal needs foreign currency to settle its import bills.

Key Macroeconomic Indicators

                       Mid-Sept 2015    Mid-Sept 2016

Inflation           7.2pc                  7.9pc

Imports           Rs103.9b             Rs149.0b

Exports           Rs12.2b               Rs13.2b

Trade Deficit    Rs91.7b              Rs135.8b

Forex Reserves    $8.3bn            $9.7b

Published: 22-10-2016 08:39

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