- Sputnik International, 1920, 24.01.2023
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Nepal's Import Restrictions Could ‘Exacerbate’ Inflation, Hamper Economic Growth, IMF Warns

© AP Photo / Niranjan ShresthaA Nepalese walks in front of wall painting of a map of Nepal next to the garbage in Kathmandu, Nepal, Tuesday, May 3, 2022
A Nepalese walks in front of wall painting of a map of Nepal next to the garbage in Kathmandu, Nepal, Tuesday, May 3, 2022 - Sputnik International, 1920, 04.05.2022
In order to preserve the federal forex reserves, Nepal’s central bank has banned imports of liquor, tobacco-related products, certain potato crisps and snacks, mobile sets worth more than $600, colour TVs of more than 32 inches, cars and toys. Kathmandu has also banned the import of diamonds and imposed a quota on gold.
The International Monetary Fund (IMF) has advised Nepal against resorting to import restrictions to solve the ongoing economic crisis caused largely by dwindling forex reserves.
A statement released on Wednesday by the organisation which is based in Washington DC, urged Kathmandu to “tighten monetary policy”, including effecting an increase in lending rates, rather than banning the import of products.

“Taken together with the gradual unwinding of COVID support measures in the banking system, this approach is expected to tackle decreasing international reserves without the need to resort to import restrictions that could exacerbate inflation and hamper economic growth,” it said.

Although inflation in Nepal at present hovers around 7 percent, the central bank has warned that it could double by next year.
The IMF release came after officials returned from a two-day visit to Nepal. The IMF team was led by Robert Gregory, the deputy unit chief in the group’s Strategy Policy and Review Department.
The visiting delegation held meetings with, among others, Nepal's federal Finance Minister, Janardan Sharma, and the governor of Nepal’s Rastra Bank (Central Bank), Maha Prasad Adhikari.
Nepal’s import-reliant economy largely depends on tourism revenues, as well as remittances from abroad, both of which took a hit during COVID-induced lockdowns around the world.
In recent weeks, several observers have expressed concerns that Nepal’s economic woes could replicate those of Sri Lanka, another South Asian nation where dwindling forex reserves and rising import bills have caused the biggest economic crisis in around seven decades.
The IMF underlined that global economic trends have exacerbated “existing vulnerabilities” and affected the nation’s “self-reliant economy”.
The IMF blamed “increasing inflation” and “decreasing international reserves” for the country's economic indicators.

It attributed present inflation levels in Nepal to the “impact of the war in Ukraine” contributing to a rise in commodity and energy prices.

According to official statistics reported in Nepalese media, Kathmandu’s fuel import bill exceeded $8 million a day by mid-April, much higher than the cost of imports around the same time last year.
Kathmandu’s current account deficit (CAD) has more than tripled to $3.7 billion this year as compared with last year, according to official statistics reported in local media.
Besides, officials from Nepal’s Central Bank have been sounding warnings that the current forex reserves would last only about six to seven months. The foreign exchange reserves have dropped from $11.75 billion in July last year to $9.75 billion in April this year.

“Although [forex reserves] at present remain adequate, international reserves have declined more than anticipated when the ECF was approved,” the IMF stated.

The Extended Credit Facility (ECF) is aimed at providing financial assistance to countries facing problems related to balance of payments.
In January this year, the IMF approved a 38-month ECF package of $395.9 million geared at “preserving” the nation’s macroeconomic stability.
The IMF further called upon Kathmandu to adopt a “prudent” federal budget which is “consistent” with the terms of the IMF-supported economic package.

“Taken together with a tighter monetary policy, this policy mix would help tackle inflationary pressures and growing external imbalances, while safeguarding the economic recovery and debt sustainability,” it said.

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