Banking bodies and associations of non-residents have been roped in by the Nepal government to curb the flow of currency and attract foreign exchange in the form of remittances.
Seeing the disturbing developments in Sri Lanka, Nepal has begun to take action to pre-empt a foreign exchange crisis.
The international coordination committee of the non-resident Nepalis association (NRNA) held an emergency meeting on Monday and decided to lend hands to the government’s efforts to resolve a possible economic crisis in the country. A second interaction with the Finance Minister, officials of the central bank, the Nepal Rastra Bank and economists and other government officials is planned for Wednesday.
The meeting decided to send word to all non-resident Nepalis to apply for a US Dollar account in any bank in Nepal and to deposit at least 1,000 USD in that account during the course of the coming month.
A NRNA task force will also appraise the government of the hiccups of initiating a dollar account, remitting dollars and also operating the account.
Over the past few months, a large number of Nepal workers have been given high-visibility farewells by government officials. These workers had returned home during the COVID-19 pandemic and their return to their foreign workplaces, or karma bhoomi, is important not only for their families, but also for the government that now realises the value of the remittances these workers send back home.
Nepal’s biggest source of dollars has been its tourism industry. But that has taken a big hit since the COVID-19 pandemic struck the Himalayan country.
Bankers tighten controls
Earlier, over the weekend, a meeting of the Nepal Bankers’ Association (NBA) announced a decision not to issue letters of credit for the import of essentials except in case of extreme urgency. The ban on the imports of vehicles, gold, silvers, sugar, chewing gum, dry foods, furniture, cigarettes, alcohol, perfume and mobile phones will be non-negotiable, the bankers said.
This followed on a decision of the Nepal Rastra Bank, which, in the past week had imposed 50 to 100 percent cash margin on the import of some 47 goods in a bid to stop the outflow of the country’s depleting foreign exchange reserves.
Likewise, the central bank had called and directed CEOs of all 27 commercial banks to halt letters of credit to the imports of luxury goods, mainly vehicles.
Simultaneously, exports are being promoted – mainly, tea from the estates and gardens in Ilam to the country’s east; soyabean oil, carpets and fibre.
Nepal’s biggest worry are its petrol bills. It is dependent on fuel imports from India and the galloping bills are causing late-night meetings to curb inflationary trends that come with a hike in fuel prices.
The price of petrol, according to the Nepal Oil Corporation Ltd (NOC) was Nepali Rupees 160 on Tuesday (corresponding to Indian Rupees 100). NOC is a government owned organization that imports, stores and distributes petroleum products.
Corporation officials have complained to the government that they are losing over Rs 20 for every litre of petrol. They have said that this cannot be sustained much longer.
More worrisome is the cost of cooking gas, a cylinder of which costs 1,600 Nepali Rupees (or 1,000 Indian Rupees). The Nepal Oil Corporation is incurring a loss of over Rs 930 on every cylinder of cooking gas, officials say. Even a litre of kerosene oil costs 143 Nepali rupees.
In fact, the government has been even wary of undertaking any publicity of its agreements with India for the supply of oil and the joint inauguration of the Motihari-Amlekhgunj petroleum pipeline by Prime Ministers Narendra Modi and Sher Bahadur Deuba.
The Nepal government is keenly watching the turn of events in Sri Lanka – apprehensive of any political fallout of inflationary pressures.