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The country has witnessed negative growth inremittances in the first four months of this fiscal year, which could have anadverse impact on various sectors of the economy. Unveiling the firstquadrimester’s macro economic outlook, Nepal Rastra Bank (NRB) has said that itcould exert pressure on the Balance of Payments (BoP), which was at a marginalsurplus of Rs 2.40 billion in the review period.

However, the current account is already negativeby Rs 25.81 billion in the review period due to skyrocketing imports againstsluggish exports. The country’s BoP situation was surplus with Rs 21.98 billionand the current account surplus was Rs 1.86 billion in the corresponding periodof previous fiscal.

Remittances, which have been lubricating theNepali economy since the early 2000’s along with rising outmigration of theyouth population from the country, plunged to negative growth territory for thefirst time following the global economic crisis of 2009, which impacted theGulf economy along with oil price shocks.

As per the central bank, the country received remittanceworth Rs 228.95 billion in the first quadrimester of this fiscal compared to Rs232.14 billion of the corresponding period of the last fiscal. Remittancerecorded negative growth of 1.4 per cent in the review period, whereas itwas  7.8 per cent in first quadrimester of the last fiscal as compared toprevious fiscal.

Decline in remittances will have an adverse impact on theeconomy as the banking system is already in a crisis regarding fresh sources ofdeposits, which could be remittances. Negative growth of remittances willhamper the loan expansion plan of the banks including trade financing (letterof credit businesses for imports). This might create a situation of contractionin imports in the coming days and government’s revenue that is generated fromimports could be affected, as per economists.

Skyrocketing imports against sluggish exports is the majorreason behind the widening current account deficit in the fourth month. Thecurrent account registered a deficit of Rs 21.94 billion in the third month ofthis fiscal, which has widened to Rs 25.81 billion in the review period, as perthe NRB report. The country’s imports surged by 10.8 per cent in the first fourmonths to Rs 334.31 billion against the export growth of 7.5 per cent to Rs26.35 billion. The trade deficit has widened to Rs 307.96 billion.

On the other hand, consumer price inflation slightly pickedup to 3.9 per cent along with increased money supply as political parties andthe Election Commission spent a huge sum of money for the elections. “Despiteinflation wedge of one percentage point between Nepal and India, increment inprice of vegetables and alcoholic drinks, among others, has contributed to theacceleration of inflation in the review month as compared to 3.1 per cent inmid-October,” the NRB report states.

Source:The Himalayan Times, 25th December 2017

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