Nepal records BoP deficit of Rs24.7 billion

April 23, 2018

The Kathmandu Post, 22 April 2018

Outflow of funds from the country’s economy surpassed inflows by Rs24.7 billion in the first eight months of the current fiscal year, as country’s trade deficit widened by over 23 percent.

The balance of payments (BoP) deficit of Rs24.7 billion recorded in the eight-month period between mid-July and mid-March has exerted pressure on foreign exchange reserves, which fell by 3.4 percent to $10.1 billion in March, shows the latest report of the Nepal Rastra Bank, the central bank.

Nepal’s foreign income has not been able to sustain expenses as country’s imports have exceeded exports by a wide margin, resulting in trade deficit of a whopping Rs713.9 billion in the first eight months of the current fiscal year. 

The trade deficit recorded so far this year is around 27 percent of the country’s gross domestic product. 

Nepal’s imports surged by 22.1 percent to Rs767.36 billion in the first eight months of the fiscal year due to higher demand for petroleum products, food items, live animals, and vehicles and their spare parts. Exports, on the other hand, went up by 10.8 percent to Rs53.42 billion in the same period.

The foreign income loss triggered by a mismatch in import and export earnings was offset by remittance inflow to some extent. Nepalis working abroad sent home Rs471.8 billion in the eight-month period, up 4.9 percent than in the same period a year ago. 

But the money sent by overseas migrant workers could not shore up balance of payments, which slipped into deficit. 

What is worrying is the manner in which Nepal is losing ground in services trade. Nepal’s services trade deficit widened by a startling 161.9 percent in the first eight months of the current fiscal year, as the country’s spending on overseas transportation, education and travel surged.

Nepal’s tourism sector, which makes a big contribution to services trade, for example, generated income of Rs43.5 billion from foreign tourists in the first eight months of the current fiscal year. 

But in the same period, Nepalis travelling abroad, including students, spent Rs50.8 billion. Also, around Rs40.4 billion was spent to cover overseas transportation expenses, including services provided by foreign airline companies operating in Nepal. Also, foreign companies operating in Nepal transferred dividend abroad, which also exerted pressure on the country’s BoP and foreign exchange reserves.

These losses were to some extent covered by 70.5 percent hike in foreign direct investment (FDI). But volume of FDI that Nepal receives is too small, standing at Rs14.24 billion in the first eight months of the current fiscal year.