Nepal restricts imports as foreign exchange reserves dwindle

Man counting Nepalese money.

Nepal has restricted imports of non-essential goods – including cars, cosmetics and gold – after its foreign currency reserves plummeted.

It comes as a drop in tourism spending and remittances sent home by Nepalese working abroad have helped to drive up public debt.

Meanwhile, the country’s central bank governor was removed from office last week.

The Nepalese finance minister said he was “surprised” that the issue was compared to the crisis in Sri Lanka.

According to the country’s central bank, Nepal Rastra Bank, foreign exchange reserves fell by more than 16% to 1.17 tn Nepalese rupees ($9.59bn; £7.36bn) over the past seven month before mid-February.

During the same period, the amount of money sent to Nepal by people working abroad decreased by almost 5%.

Narayan Prasad Pokharel, the central bank’s deputy spokesman, told Reuters news agency that the institution believed the country’s foreign exchange reserves were “under pressure”.

“Something must be done to restrict the import of non-essential goods, without affecting the supply of essential goods,” Pokharel said.

He added that importers were allowed to import 50 “luxury items” if they paid for them in full.

“It’s not about banning imports but discouraging them,” Pokharel said.

Last week, the Nepalese government removed central bank governor Maha Prasad Adhikari from office, without giving a reason for the decision.

Nepal’s public debt has reached more than 43 percent of its gross domestic product as authorities increased spending to help cushion the economic impact of the pandemic, Nepal’s finance ministry said on Monday.

The ministry also said indicators of the country’s economic health were “normal”.

“However, due to certain pressures in the external sector, some measures have already been taken to manage imports and increase foreign exchange reserves,” he said in a statement.

Earlier in the day, Finance Minister Janardan Sharma said Nepal’s debt was lower than other countries in the region and beyond.

Mr Sharma told reporters: “I’m surprised people are comparing it with Sri Lanka.” The island nation is facing its worst economic crisis since gaining independence from Britain in 1948.

Alex Holmes, an emerging markets economist at research firm Capital Economics, also told the BBC that the situation in Nepal looks “much better than in Sri Lanka”.

Nepal’s foreign exchange reserves are double what is considered a “comfortable minimum” and public debt “is not particularly high”, Mr Holmes said.

“Of course things will eventually go down if the current account deficit doesn’t narrow,” he added. “But the crisis does not seem imminent.”

Sri Lanka last week appointed a new central bank chief and nearly doubled its key interest rate to help deal with soaring prices and shortages of essential goods.

In recent weeks, protesters have taken to the streets of the capital Colombo as homes and businesses were hit by long power cuts.

Sri Lankans are facing shortages and rising inflation after the country sharply devalued its currency last month ahead of talks with the International Monetary Fund on a bailout.

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