This situation prevails despite a decent rise in remittance incomes and facilitation of foreign exchange requirements for Nepalis visiting overseas following the balance of payments crisis.

As per latest reports of the Nepal Rastra Bank (NRB), the country’s foreign exchange reserves stand at USD 9.4 billion as of November 2018, similar to March 2016.

This fall in forex reserves has been continuing since July 2018 due to rise in imports.

According to the Central Bank, the current reserves are sufficient to deal with prospective merchandise imports of 9.2 months and merchandise & services imports of 7.9 months.

Outflow of reserves exceeded the inflows to the Central Bank during the first four months of the fiscal, NRB added.

The outflow surpassed inflows by NPR 57.3 billion during the period, resulting in a balance of payments deficit of Rs 57.3 billion between mid-July and mid-November.

This situation was observed despite 36.4 percent rise in remittance inflows (around NPR 312.3 billion), which got affected by a 35.8 percent rise in imports during the period.

Major concern here was the mismatch in trade during the period. While imports saw an 18.1 percent high, year-on-year, exports grew by a modest 11 per cent to NPR 29.3 billion. This eventually widened the country’s trade deficit by 37.8 per cent.

On the other side, while Nepalis spent NPR 34.9 billion overseas, the country received only NPR 25.1 billion in earnings from foreign visitors.

Foreign Direct Investment is another important factor that fell from 51.3 per cent to Rs 4.9 billion in the first four months of current fiscal, contributing to overall forex decline.

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Now that Nepal has the support of its neighboring countries, it is gearing up for its upcoming railway projects. The department is currently assessing its needs and addressing any issues that need immediate attention to meet one of its major goals of building a strong rail network internally and externally.

“We are assessing the needs and preparing a plan accordingly,” says Nepal Railway Department, Senior Engineer, Prakash Upadhyaya.

According to Upadhyaya, the department will shortly approach the Ministry of Physical Infrastructure and Transport, a crucial agency that is responsible for the progress of major infrastructure projects.

However, there are some issues that present obstacles in the department’s course of action.

Obstacles to the project:

• Currently, the budget and infrastructure allocated to the department is not enough to push the project forward. The government has given a sum of Rs 4.5 million for the department’s overall development including the study of multiple railway projects, which include the prospects of monorail
• The department lacks skilled labor and currently does not have any rail engineers.
• The existing workforce is not sufficient as there are only 40 persons presently working for the agency.

The department officials opined that budget allocation will not impact their work provided that a pre-feasibility study of cross-border railway lines is financially supported by the supporting neighboring countries.

Despite the challenges, Nepal’s railway department is undeterred and is keen on garnering support from its neighboring countries to commence the projects.

Talking about the situation, Upadhyaya says, “We may lack the resources, but we do have Nepali people who have been trained in railway engineering in countries like China and South Korea. We should be working towards attracting such individuals to work for us.”

With the aim of equipping its existing workforce with the required skills for the projects, Nepal has sent two if its engineers to China to study a Master’s degree in Railway Engineering.

Infrastructure expert Suraj Raj Acharya is of the opinion that the country needs to be clear on the railways’ significance in the country’s transport infrastructure before zeroing on aspects construction or technical feasibility.

Making his point clear, he says, “There are several railway technologies and the country should cautiously pick an appropriate technology that can help achieve the development goal the country aims to achieve. A rail having a speed of 200 hours per kilometer can adversely impact number of airports in the country.”

Have we made consideration of such situation before creating railway euphoria?” he questions.

The latest update comes as a development to the discussions the prime ministers of Nepal and India had with regard to the prospects of developing railway lines within Nepal and beyond in their recent meetings.

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Stakeholders say that the country will need more than Rs 500 billion in the next fiscal year to meet the targeted economic growth rate of 8 percent.

Taking into perspective the targeted growth rate, they said that the suggested expansionary monetary policy will keep the money flow in the market and curb interest rates. Both of these aspects are important factors for achieving the targeted growth rate and keeping inflation within the targeted 6.5 percent.

“Amid lack of adequate investment funds, it will be tough for the government to achieve the targeted economic growth rate in 2018-19. In such a situation, the central bank should draft a monetary policy that is as expansionary as possible even if it adds to the inflationary pressure to some extent,” says Gyanendra Dhungana, President of Nepal Bankers Association (NBA).

Dhungana further asked the central bank to consider getting rid of the credit-to-core Capital Plus Deposit (CCD) ratio limitation in the banking sector through the enaction of the monetary policy explaining that liquidity could be restrained even by maintaining the Cash Reserve Ratio (CRR) and Statutory Liquid Ratio (SLR).

What Key Stakeholders Said

Private sector representatives present at the meeting encouraged NRB to address various lapses of the budget that have eaten away at the business sector through monetary policy.

 “Among others, the government’s policy to scrap the VAT rebate system on different essential goods and the inability of the budget to ensure stability in interest rates in the banking sector are discouraging. The monetary policy should address these bottlenecks of doing business in Nepal,” says Shekhar Golchha, Senior Vice-President of the Federation of Nepalese Chambers of Commerce and Industry.

The Vice-President of Nepal Chamber of Commerce (NCC) Kamalesh Kumar Agrawal also expressed his views on the plan saying that the monetary policy should also facilitate production and supply of goods.

Kumar stressed on the need to limit interest rates within the 9 percent limit on loans in the banking sector, redefine productive & non-productive sectors and permit the usage of high-denomination Indian currency in the domestic market.

Speaking to the members, Nara Bahadur Thapa, Executive Director of NRB, said that the monetary policy for FY 2018-19 will focus on:

• Accelerating the present economic growth momentum
• Narrowing down the trade deficit
• Increasing the flow of loan to Small Medium Enterprises (SMEs)
• Controlling rising interest rate
• Increasing public access to financial services

“The market is already witnessing inflationary pressure and it will likely increase in the next fiscal year. The monetary policy will be prepared by adopting cautious measures to control inflation,” says Thapa.

Addressing the event, NRB Governor Chiranjibi Nepal said that the monetary policy will fuel the budget’s target of achieving the expected economic growth in FY 2018-19 and restricting inflation to 6.5 percent.

“Nepal has witnessed an economic growth rate of over 6 percent for two consecutive years despite political instability and frequent changes in government. As the country now has a stable government and the supply-demand situation is improving, the 8 percent economic growth target in 2018-19 is achievable,” says Chiranjibi.

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