Nepal external sector performance continues to deteriorate, drawing concern from related stakeholders.
Despite a steady economic growth rate over the last three years, some of Nepal’s macroeconomic indicators show that all is not well with the country’s external sector.
According to Nepal Rastra Bank’s (NRB) recent update, the country’s Balance of Payments (BoP) has fallen by NPR 67.4 billion in FY 2018-19 compared to the surplus of NPR 960 million earned in FY 2017-18.
Alarmingly, Nepal registered a BoP deficit throughout the last fiscal year owing to the increasing trade deficit, along with no earnings in terms of foreign currency.
Nepal recorded a rise in merchandise imports by 13.9 percent to NPR 1,418.54 billion in 2018-19.
On the other hand, the country’s exports increased by a smaller margin of 19.4 percent from NPR 97.11 billion. This imbalance between imports and exports resulted in an increased trade deficit of NPR 1,321.43 billion during 2018-19.
On account of this, the foreign exchange reserve (forex) fell to NPR 1,038.92 billion in mid-July, from NPR 1,102 in the same period during FY 2017-18.
However, Nepal portrayed a steady remittance growth in FY 2018-19, which increased by 16.5 percent to NPR 879.27 billion in comparison to 8.6 percent in 2017-18. But it is worth noting that there is a decline in the number of Nepali migrant workers in recent years, which is likely to result in a decline in the remittances earned over the years to come.
Economists question whether the government will be able to maintain the economic growth rate, which is largely based on consumption.
They suggest that the government should create a favorable environment to attract private sector investment and foreign direct investment (FDI) to shift Nepal’s remittance and consumption-based growth to an investment and productivity-driven one.
Speaking about FDI, Nepal’s FDI Inflow decreased to NPR 13.07 billion in 2018-19 from NPR 17.51 billion in 2017-18.
The private sector investment also took a hit due to shortage of funding in the banking sector. Interest rates of banks increased, making it increasingly difficult for business firms to draw funds.