Nepal is discouraging traders from importing luxury goods to save its fast-depleting foreign exchange reserves as imports bills surged to $9.38 billion in the first seven months of the current fiscal (FY22), recording an increase of 42 percent in comparison to the same period of the last fiscal year.

Although the Nepal Rastra Bank, the country’s central bank, hasn’t issued any official notification, it has reportedly communicated verbally to banks to restrict letters of credit for non-essential items, reported The Kathmandu Post.

The surge in imports and downfall in the gross domestic product prompted the central bank to step in to wrest the depleting foreign exchange reserves. The gross domestic product plunged by almost 16 percent to $9.64 billion in the first seven months against $11.45 billion recorded in the same period a year ago. 

Remittances, one of the main sources of foreign exchange, haven’t grown in the same period and, in fact, fell by almost five percent while the income from tourism, another significant forex source, is yet to pick up. 

“The central bank’s decision to restrict imports of luxury goods temporarily is intended to avoid a probable economic crisis, considering the current economic indicators," Gunakar Bhatta, spokesperson for Nepal Rastra Bank, was quoted as saying by The Kathmandu Post.

“We have not directed banks to open LC for any particular goods,” he said.

From the $800 million in surplus, the balance of payment recorded a deficit of $2.03 billion in the same period this year. The current account deficit is at $3.41 billion against $856 million in the same period last fiscal year FY21.

Although the reserves are still enough to cover the imports for seven months, measures are being taken to save the precious reserves, which could impact the overall economy if it continues to decline like this.

(SAM)