Nepal restricts imports to save cash, suspends central bank governor

REUTERS: Nepal is tightening imports of cars, gold and cosmetics as its foreign exchange reserves have fallen, a central bank official said yesterday, after the government suspended the central bank governor and named his deputy the interim chief.

The Himalayan country’s foreign reserves have been hit by a slump in tourism in Asia during the pandemic, a problem that has also hit Sri Lanka, which is going through a crippling economic crisis, due to a shortage of tourist revenue and other funds. 

“Nepal Rastra Bank (NRB, the central bank) feels the country’s foreign exchange reserves are under pressure and something must be done to restrict the import of non-essential goods, without affecting the supply of essential goods,” NRB deputy spokesperson Narayan Prasad Pokharel told Reuters.

He said importers would be issued letters of credit to bring in 50 “luxurious goods” only with full upfront payments with the bank, declining to name all the items.

“We have already directed all the border customs points about the new arrangements for the import of these goods,” he said. “This is not banning the imports but discouraging them.”

A spokesperson for the central bank referred questions about the governor’s suspension to the finance ministry.
A ministry spokesperson said he did not know why NRB Governor Maha Prasad Adhikari was suspended on Friday but that a government panel would 
investigate the matter.

A government official said on condition of anonymity that Adhikari was accused of leaking sensitive financial information to the media. Reuters could not immediately contact Adhikari, whose mobile phone was switched off.
With tourism struggling to resume after two years of the COVID-19 pandemic, Nepal’s gross foreign exchange reserves fell to US $ 9.75 billion as of mid-February, down 17 percent from mid-July last year when its financial year started.

The current reserves are sufficient to support imports for about six months for the country of some 29 million people, where India and China jostle for influence.Data from the central bank shows remittances from overseas fell 5.8 percent to US $ 4.53 billion between mid-July to mid-February.

The balance of payments had a deficit of US $ 2.07 billion in the first seven months of the current financial year, compared with a surplus of US $ 817.6 million in the same period the previous year.  Opposition parties have criticised Prime Minister Sher Bahadur Deuba’s government for suspending the central bank governor when the economy is weak.

“He was doing a good job and his removal at a time when economic indicators are not good is a wrong decision,” said Surendra Pandey, a senior leader and lawmaker of the opposition Communist Unified Marxist-Leninist party.
The Asian Development Bank said this month that Nepal’s government debt increased to 41.4 percent of gross domestic product in the 2021 fiscal year, from an average of 25.1 percent between 2016 and 2019 due to increased spending during the pandemic.

The Philippines-based bank predicted Nepal’s current account deficit would widen to 9.7 percent of GDP in this fiscal year from 8 percent last year.