Inflow of money sent home by Nepalis working abroad fell for the third consecutive month in the current fiscal year, exerting pressure on the country’s foreign exchange reserves, which need to remain robust to support imports.

 

Remittance inflow began taking a dip since the fourth month of the current fiscal year in mid-November. The drop continued till the sixth month of the current fiscal year, which ended in mid-January, shows the latest Macroeconomic Report of the Nepal Rastra Bank (NRB), the central bank. This is an indication that remittance, which accounts for 27 percent of the gross domestic product, will gradually play less dominant role in boosting economic activities, especially consumption, as in the past.

 

Remittance inflow dropped by 0.5 percent to Rs340.5 billion in the six-month period between mid-July and mid-January of this fiscal year. In the same period a year ago, remittance inflow had jumped 5.7 percent, shows the NRB report.

 

Remittance inflow has been falling in line with the drop in number of Nepalis leaving the country for employment purpose. Nepal has seen a dip in migrant workers’ outflow for the two consecutive years. This drop has continued in this fiscal year as well, with the number of outgoing migrant workers registering a fall of 1.8 percent in the six-month period. This is an indication that migrant worker outflow would shrink in the current fiscal year as well.

 

While remittance inflow is falling, imports have continued to surge. Imports grew by 15 percent to Rs534.2 billion in the first half of this fiscal year. On the contrary, exports grew rather slowly at 13.4 percent to Rs41.1 billion. This mismatch in export earning and import expenses widened the country’s trade deficit by 15.1 percent to Rs493 billion in the first half of this fiscal year.

 

As trade deficit widened and remittance income fell, current account slipped into a deficit of Rs75.7 billion in the first half of this fiscal year. This also exerted pressure on balance of payments (BoP), which too fell into a deficit of Rs6.7 billion in the six-month period. A BoP deficit of Rs6.7 billion implies outflow of funds from the economy surpassed inflows by Rs6.7 billion. The country’s BoP slipped into deficit despite foreign direct investment registering a jump of 93.9 percent to Rs14.3 billion in the first six months of the current fiscal year.

 

Greater outflow of funds from the economy, in turn, exerted pressure on the country’s foreign exchange reserves, which grew by mere 0.2 percent to $10.5 billion in mid-January, shows the NRB report.