A boost to foreign exchange reserve is one of the benefits

As the money coming to Nepal outpaced the amount going out of the country, the balance of payments surplus in the first half of the current fiscal year surpassed the surplus recorded in 12 months of the last fiscal.

The overall BoP recorded a surplus of Rs 77.18 billion in the first six months of fiscal 2013-14, according to the latest macroeconomic report released today by Nepal Rastra Bank.

This means money that the country received in the first half was Rs 77.18 billion more than what it sent abroad for various purposes, including settlement of payments. The BoP surplus of last fiscal year stood at Rs 68.90 billion and it hovered around Rs 7.80 billion in the first half of last fiscal.

“One of the benefits of higher BoP surplus is that it gives a boost to foreign exchange reserve,” said Min Bahadur Shrestha, Chief of the Research Department, Nepal Rastra Bank. “This indicates that the country has the ability to pay import bills for a longer period — an indication that the economy may not be hit immediately even if flow of foreign currency stops abruptly. This ultimately helps build confidence in investors.”

As of mid-January, the country’s gross foreign exchange reserve stood at Rs 624.60 billion, 17.1 per cent more than in mid-July. This reserve is sufficient for financing merchandise imports of 11.4 months and merchandise-cum-service imports of 10.2 months, according to NRB. 

One of the main reasons for remarkable growth in BoP surplus, and thereby foreign exchange reserve, this fiscal is higher inflow of workers’ remittance. 

Nepali migrant workers sent home Rs 265.62 billion in the first six months of the current fiscal, 34.4 per cent more than in the same period last fiscal. 

The country’s remittance income also surged this year because of weakening of Nepali currency.

Because of depreciation of Nepali rupee, income of the tourism sector also went up. Income from travel sector stood at Rs 23.29 billion, which marks a hike of 39.2 per cent compared to the same period last fiscal.

“In addition, the amount of foreign grants received during this period also almost doubled as introduction of budget on time instilled confidence in our development partners,” said Shrestha. 

The foreign grants received in the first half stood at Rs 22.69 billion, as against Rs 11.88 billion in the same period a year ago. This also contributed to higher BoP surplus this year.

“However, higher BoP surplus may have its downsides, especially if funds entering the country are not utilised properly,” Shrestha said. 

Already, the country’s banking sector is under pressure because of liquidity surplus.

Published on: 19 February 2014 | The Himalayan Times