Panel to explore measures to check swelling imports

- Rajesh Khanal, Kathmandu

Dec 20, 2018-

With the swelling current account deficit eating into country’s foreign exchange reserves, the government is exploring measures, including quantitative import restriction on some items, to curb the ever-increasing imports. 

The Finance Ministry on Tuesday formed a committee under Revenue Secretary Lal Shankar Ghimire to identify the items, import of which could be regulated to check on the trade deficit.

Nepal’s external sector has taken a beating with ballooning current account deficit due to increasing imports and weakening exports which, according to government officials, is eroding country’s foreign exchange reserves. 

With the country’s imports bill account Rs483 billion, the trade deficit has increased by 40 percent to Rs454 billion, while country’s balance of payment remained negative by Rs60 billion in the four months of the current fiscal year according to latest statistics of Trade and Export Promotion Centre. 

The Ghimire-led committee, which also comprises senior officials the from Finance Ministry, Nepal Rastra Bank and three departments—Customs, Commerce and Industry, has to submit policy measures in a week. “The committee will study overall situation of trade deficit, balance of payment and recommend measures to the government,” said Ram Sharan Kharel, an official at the ministry.

Officials at the Finance Ministry and central bank said the committee would identify the areas contributing to the excessive outflow of foreign currencies and suggest goods/items whose imports could be put under quantitative restriction. The government has been imposing quantitative restriction on sugar import since mid-September. 

According to members of the committee, the government could impose similar restrictions on import of luxury items without violating the compliance of the World Trade Organisation (WTO). 

Bhisma Raj Dhungana, head of the Foreign Exchange Management Department at Nepal Rastra Bank, said the committee would also study the prevailing mechanism on service payment. 

“It will identify the loopholes on the service payment system which might have been misused,” said Dhungana, a member of the committee, adding the committee would also investigate the threats posed by the advanced technology such as Wechat used in service payment system.

According to Dhungana, the panel has been asked to classify the goods imported in the country under three headings—extremely essential, essential and non-essential. 

 

“While the government can hardly restrict the first two categories, quantitative restriction could be imposed on those that fall under non-essential category,” he said. 

The central bank’s latest macro-economic report shows the existing foreign currency reserves will not be able to sustain imports for longer than eight months. The current reserve of $9.56 billion will only be enough to finance imports of merchandise goods and services for 7.9 months even though central bank regulations require it to maintain a reserve enough for at least 8 months, according the bank report. The NRB has already set the ceiling on the amount of foreign currency that citizens can carry—from $2,500 to $1,500 per passport—while travelling abroad. 

Trade experts, however, harbour doubts that the planned government move would yield desired results. 

Posh Raj Pandey, executive chairman of the South Asia Watch on Trade, Economics and Environment, said imposing restrictive measures could violate the WTO norms. “As per the norm of the international organisation, the country cannot impose outright restriction only on tariff line defined for around 5,500 goods,” Pandey said. 

Petroleum products, vehicles, medicines, mobile phones and a number of agricultural products are among the major items account for a large chunk of Nepal’s import bills. “Among these, the government could raise tariff on vehicles to some extent. However, imposing restriction on other goods could lead to distortion of the market,” Pandey warned.

Economist Chandan Sapkota said the government could impose high tariff rate on imports of non-capital and non-essential goods along with vehicles. “However, imposing such measures on imports of consumer goods will lead to welfare loss,” Sapkota said.

Published: 20-12-2018 06:40

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