February 23: The liquidity crunch faced by banks and financial institutions (BFIs) is now having impact on the country’s foreign trade. Imports and exports of Nepal have both declined in the month of Magh (mid-January to mid-February) due to the inability of BFIs to provide loan to the importers as per their demand and also due to the central bank’s policy to restrict import of luxurious goods.

During the review month, Nepal’s imports declined by almost Rs 13 billion while the exports also dropped by Rs 3 billion.

As per the data made public by the Department of Customs, the country imported goods worth Rs 148.12 billion during the review period against exports worth Rs 160.93 billion a month before (mid-December to mid-January).

Nepal Rastra Bank (NRB) had imposed measures to restrict the import of luxurious goods after the country’s Balance of Payments increased and foreign exchange reserves declined due to high volume of imports.

The central bank had introduced a provision of 100 percent cash margin for opening LC in the third week of December. The items that required 100 percent cash margin included beer, wine, and other liquors as well as tobacco products, silver, gold, furniture, sugar,  sweet meats, mineral water, energy drinks, nail polish, body lotion, face cream and other cosmetics, caps, shoes, leather, construction materials, marble tiles among others.

In February, the central bank added new list requiring 100 percent cash margin that included products such as walnut, almond, banana, cigarette, cake, handbag, watches, seat of vehicles, painting and drawing materials that also require 100 percent cash margin for opening LC.

Likewise, goods such as motorcycles and scooters, woolen thread, readymade garments, jackets among others require 50 percent cash margin.

BFIs are not allowed to provide loan for the cash margin while the amount deposited by the importers will not be entitled to interest, according to NRB’s recent directive.

Data show that imports have started declining due to the provision of cash margin.

Nepal imported goods worth Rs 150 billion in the first month (mid-July to mid-August) of the current fiscal year which increased to Rs 188 billion in the fifth month (mid-November to mid-December). However, the imports declined from mid-January after the central bank introduced the provision of cash margin.

Exports have also declined in the month of Magh (mid-January to mid-February). Nepal exported goods worth Rs 12.8 billion in the review month against exports worth Rs 15.93 billion a month ago (midDecember to mid-January).

The decline in foreign trade has also hit the revenue collection. The revenue collection in mid-January to mid-February dropped to Rs 36.7 billion from Rs 40.27 billion a month ago.

Trade deficit has increased due to excessive imports compared to exports. The country’s trade deficit stood at Rs 1,015 billion in the first seven months of the current fiscal year while it was Rs 733 billion during the same period of the previous fiscal year. Trade deficit has increased by 38.45 per cent.