Foreign exchange reserves reached 19.5 billion, mostly due to remittances

Currency of countries other than Nepal is foreign currency for Nepal. It is also known as foreign exchange. Exports, tourism, remittances, foreign aid and subsidies, foreign loans are the main sources of foreign earnings. Although there have been signs of general improvement in tourism in recent months, the situation of exports and foreign aid and subsidies is very critical. But for the last one and a half years, more than one billion remittances have been coming into Nepal every month. On a monthly basis, out of the 10 months of the current financial year, the highest amount of 1 trillion 37 billion rupees was received in last October and the lowest was 1 trillion 5 billion rupees in last January. Accordingly, 1 trillion 16 billion rupees remittances have been received in last Baisakh.

Although there was a decrease in remittances in Baisakh compared to the previous month (last March), remittances increased by 23.4 percent this year compared to 10 months of last year. In this way, the inflow of remittances is continuously increasing and due to the improvements in tourism and other sectors, foreign exchange reserves are making new records every month. According to Rashtra Bank, 11 trillion 98 billion 600 million remittances have been received in 10 months of the current financial year. This is an increase of 19.2 percent compared to last year. Remittances in US dollars increased by 17.1 percent to 9.2 billion.

A country with high foreign exchange reserves is seen as a strong economy. When we import goods and services from other countries, we have to pay in foreign currency. Foreign currency is needed not only to repatriate foreign investment but also to repatriate dividends from the investment. This also confirms the importance of foreign exchange reserves for the country. But since the foreign exchange reserves here are piling up due to external reasons rather than Nepal's policy reasons, former Finance Minister Surendra Pandey said that there is no reason to be happy about it.

Foreign exchange reserves are at an all-time high. By showing this reserve, the government is stuck. The reason why it piled up is because the import decreased when looking at reserves. Our revenue is based on imports. Therefore, when the import decreased, the revenue also decreased," Pandey said in a conversation with Kantipur. But reserves are only one indicator for a healthy economy. For the economy to be good, the condition of many other indicators should be good, the government could not pay attention to that.'

Foreign loans and aid and grants are falling far short of targets. Now only one month is left for the end of the financial year. By the end of the fiscal year, foreign loans and foreign aid will not even reach 50 percent of the target. Unable to raise external resources, the government turned its attention to internal debt. Therefore, even now, the government's funds have become negative, he said.

According to the Rashtra Bank, the foreign exchange reserves in US dollars reached 14 billion 54 million till last April. Compared to last June, it has increased by 24.2 percent. At the end of June 2008, such reserves were 11.71 billion dollars. According to the Rastra Bank, taking the import of 10 months of the current financial year as the basis, the foreign exchange reserves held by the banking sector will be sufficient to support 15.1 months of goods imports and 12.6 months of goods and services imports. At the end of May 2018, the country's foreign exchange reserves are 34 percent of the gross domestic product (GDP). In the current fiscal year, the National Bank had set a target of maintaining foreign exchange reserves sufficient to cover at least 7 months of imports. According to the

report, while remittances continue to increase, the current account balance and current account are consistently in surplus, while interest rates are falling. But looking at government finances, capital expenditure has not increased as expected, the situation of revenue collection is critical. Revenue collection barely covers current expenses. As the external sector of the economy is becoming strong, experts say that although the government has been given enough opportunities to spend on infrastructure development, the internal economy has not been improved due to the inability to spend.

Private sector confidence has weakened due to a sluggish economy. For this reason, the private sector has not been able to dare to expand investment even though there is sufficient liquidity in the banks and the interest rate is continuously decreasing. In such a situation, the government should increase investment in infrastructure development and productive sector and encourage the private sector to expand investment, said Prakash Kumar Shrestha, Head of Research Department of Nepal Rastra Bank.

"The strong external sector has given the government enough opportunities to spend on development," he says, "because the three levels of government are unable to spend, economic activities have not been able to run." Due to the lack of credit demand, investable funds have accumulated in the financial system. In such a situation, he suggested that all the three levels of government should increase the development expenditure rapidly in order to keep the economy running.

As of last May, the country's current account is in surplus by 1 trillion 93 billion 25 million. During the same period last year, the current account was in deficit by 63.74 billion. According to the report, the current account was in surplus of 1.45 billion during the review period, compared to a deficit of 493.6 million in US dollars during the same period of the previous year. Last year, the government imposed a ban on the import of 10 items saying that foreign exchange reserves were under pressure.

The National Bank had also arranged to keep a cash margin in the letter of credit. Therefore, exports decreased last year. Now all those arrangements have been removed. However, imports and exports are decreasing compared to last year. Economists say that the accumulation of foreign exchange reserves cannot be said to have improved the external sector as imports and exports are continuously decreasing. They say that the rate of inflation is decreasing, and the fact that the loan disbursement is not increasing even though the interest rate is decreasing is a sign that the economy is in recession.

As of last May, the balance sheet is 3 billion 92 billion 64 billion in surplus. During the same period last year, the balance sheet was in surplus by 2 trillion 9 billion 49 crores. "In US dollars, the current position which was in surplus of 1.59 billion in April last year is in surplus by 2.95 billion in the same period of this year," the report said.

The annual point consumer price increase (inflation) remained at 4.40 percent last May. In the month of Baisakh last year, the price growth rate was 7.41 percent. The average price increase has been decreasing every month since last December. Last April, the price growth rate of food and beverages group was 6.27 percent and the price growth rate of non-food and services group was 2.96 percent. In the month under review, the annual point price index of vegetable sub-group under the food and beverage group increased by 23.11, pulses and pulses by 10.85, marmalade by 8.98, food and food products by 7.42 and sugar and sugar products by 7.25. But the annual point price index of ghee and oil sub-group has decreased by 7.13 percent according to Rastra Bank.

In the month under review, the annual point price index of miscellaneous goods and services sub-group under the non-food and services group increased by 12.26 percent, education by 5.64 percent and clothing and footwear by 3.46 percent. In the same period, the annual point price index of communication sub-group has decreased by 0.48 percent.