Nepal buys Rs 394 billion Indian rupees to pay for soaring imports

- RAJESH KHANAL, Kathmandu

May 21, 2019-

Nepal bought Indian rupees worth Rs393.77 billion by selling US dollars to pay for imports from the southern neighbour during the first nine months of the fiscal year despite pressure on its greenback reserves. The figure includes Indian rupees bought by Nepal Rastra Bank and commercial banks.

The central bank said purchase of Indian rupees during the nine-month period from mid-July to mid-April grew by 3 percent due to a bloated trade deficit. Nepal spent Rs686.86 billion on imports from India against export earnings of Rs44.18 billion during the review period. The negative trade balance with India reached Rs642.68 billion, a rise of 18.6 percent.

Nepal Rastra Bank sold $3.16 billion, 49 million euros, 20 million pounds, 22 billion Japanese yen and 200 Chinese yuan to buy IRs246.10 billion from various commercial banks in India. During the corresponding period of the last fiscal year, Nepal Rastra Bank had sold $3.66 million and 40 million euros to buy IRs239 billion.

Nepal receives US dollars through remittance, tourism income and foreign direct investment. The growth rate of remittance inflow and net transfer has slowed in recent times, putting pressure on its foreign currency reserves.

“As the country’s transactions including merchandised trade is largely with India, the banking sector has to offload third country currencies to buy the Indian rupees every year,” said Laxmi Prapanna Niroula, spokesperson for Nepal Rastra Bank.

According to central bank figures, India accounted for 65 percent of Nepal’s total import bill worth Rs1.06 trillion. The increased purchase of Indian rupees and resultant drop in foreign currency reserves is likely to affect payments to third countries amid a soaring balance of payments deficit. The balance of payments is the record of a country’s overall inflows and outflows of financial transactions.

The central bank’s ninth month current macroeconomic report shows that Nepal’s balance of payments deficit stood at Rs64.68 billion, a sharp rise from the deficit of Rs14.60 billion during the same period last year. As a result, the total foreign exchange reserves fell to $9.52 billion from $10.08 billion, enough to cover 7.9 months’ worth of imports of goods and services.

Published: 21-05-2019 08:00

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