The Nepal government has been trying to prevent the decline of foreign exchange (forex) reserves in the country for quite some time and they have now decided to ban the import of luxury items in order to take care of the problem.
Nepal Rastra Bank spokesperson Gunakar Bhatta explained that the biggest challenge for the government is to maintain the forex reserves properly, according to a report on myRepublica, an English-language National daily newspaper published by Nepal Republic Media in Kathmandu.
"The import of luxury items has been stopped to prevent the decline in foreign exchange reserves due to the rising deficits and high imports," Bhatta was quoted as saying in the report.
However, Bhatta made it clear that the step was not taken due to any economic crisis in Nepal and asked the public to not panic because of the ongoing rumours of problems with the economy.
According to the report, he said that NRB currently has forex reserves to continue the imports for another six to seven months and it can increase depending on how the economy performs.
Nepal’s central bank has announced a ban on the import of vehicles and other luxury items, citing liquidity crunch and declining foreign exchange reserves, despite government assurances that the economy will not go into a tailspin like Sri Lanka.
Nepal Rastra Bank (NRB), the country’s central bank, issued this directive last week after a high-level meeting here consisting of officials from Nepal’s commercial banks.
By February 2022, the Himalayan country’s gross forex reserves had decreased 17 per cent to USD 9.75 billion from USD 11.75 billion in mid-July 2021, according to central bank figures.
The forex reserves are now only enough to sustain the import of goods and services for 6.7 months, below the central bank's target for at least seven months.
However, despite the high balance of payment deficit, Nepal’s Finance Minister Janardhan Sharma assured that the Himalayan nation is not headed in the direction of Sri Lanka.
Addressing 'National Conference on Economics and Finance' organised by Nepal Rastra Bank (NRB) in Kathmandu on Friday, Sharma quelled rumours that Nepal's economy was on the verge of collapse like that of Sri Lanka.
"Instead of creating panic by comparing Nepal's economy with that of Sri Lanka, we need to focus on improving it,” Mr. Sharma said.
Nepal's economy is comparatively in a better position in terms of the production and revenue system and the country is not affected by a huge foreign debt burden, he explained.
Mr. Sharma, however, admitted that the country's foreign exchange reserves was under stress due to the high imports of petroleum products, vehicles and luxury items and underlined the need to promote domestic production to curb imports.
