February 10: The decline in foreign exchange reserves has continued despite the tightening of imports.

Nepal Rastra Bank (NRB) had made an arrangement of keeping a cash margin of 100 percent for opening letter of credit (LC) for importing certain goods considering the negative impact of high imports on the foreign exchange reserves of the country. However, the decline in foreign exchange reserves has not stopped despite such measures

According to the Current Macroeconomic and Financial Situation Report released by the Nepal Rastra Bank on Wednesday, the foreign exchange reserves declined by an additional USD 140 million in the first six months of the current fiscal year.

NRB said that the current foreign exchange will only support imports for 6.6 months.

From the first week of December, NRB had made provision for a 100 percent margin when opening an LC for the purpose of importing luxury items such as silver and vehicles. Since then, imports of such items have declined. However, the recent data of Nepal Rastra Bank has confirmed that the declining foreign exchange reserves have not come under control yet.

In the last six months alone, foreign exchange reserves have declined by about 16 percent.

As of mid-July last year, foreign exchange reserves stood at US$ 11.75 billion. As of mid-January 2022, it had declined by US$ 1.86 billion to US$ 9.89 billion.

Executive Director of Nepal Rastra Bank Dr Gunakar Bhatta said there is no need to worry about the decline in foreign exchange. The foreign exchange reserves that can support 6/7 months of imports are considered good, he added.

By mid-January, consumer price inflation has eased. Inflation, which had reached a five-year high of 7.11 percent last December, has dropped to 5.65 percent in mid-January. In the last month, inflation declined by 1.46 percentage points. However, the decline in remittances has continued.

Similarly, the balance of payments deficit, current account deficit, and trade deficit have increased.

NRB Executive Director Dr Bhatta said that there was still no improvement in key indicators of the economy.

He said that foreign exchange reserves and the balance of payments were deteriorating due to high imports in the first six months of the current fiscal year.

Balance of Payments (BOP) remained at a deficit of Rs 241.23 billion in the review period against a surplus of Rs.124.92 billion in the same period of the previous year.

The current account remained at a deficit of Rs.354.07 billion in the review period compared to a deficit of Rs.51.68 billion in the same period of the previous year.