Nepal bans imports of luxury items as foreign exchange reserves dwindle

Nepal’s central bank has announced a ban on imports of vehicles and other luxury items, citing a cash crunch and dwindling foreign exchange reserves, despite government assurances that the economy will not plummet free like Sri Lanka. Nepal Rastra Bank (NRB), the country’s central bank, issued the directive last week after a high-level meeting of officials from Nepal’s commercial banks. “We have seen symptoms indicating that there may be some kind of crisis in the economy, mainly due to the growth of imports. Therefore, we have discussed stopping imports of these items which are not immediately needed,” NRB spokesman Gunakhar Bhatta said. Since July 2021, Nepal has seen declining foreign exchange reserves due to rising imports, falling remittances, and meager tourism and export earnings.

By February 2022, the Himalayan country’s gross foreign exchange reserves had shrunk by 17% to $9.75 billion, from $11.75 billion in mid-July 2021, according to central bank figures.

Foreign exchange reserves are now sufficient to support the import of goods and services for 6.7 months, below the central bank’s target for at least seven months.

However, despite the high balance of payments deficit, Nepali Finance Minister Janardhan Sharma assured that the Himalayan nation was not heading towards Sri Lanka. Addressing the ‘National Conference on Economics and Finance’ organized by Nepal Rastra Bank (NRB) in Kathmandu on Friday, Sharma quashed rumors that Nepal’s economy was on the verge of collapse like the one “Instead of creating panic by comparing Nepal’s economy to Sri Lanka’s, we should focus on improving it,” Sharma said. Nepal’s economy is comparatively in a better position in terms of of production and income system and the country is not affected by a huge external debt burden, he explained. Sharma however admitted that the country’s foreign exchange reserves were under pressure due to imports high prices of petroleum products, vehicles and luxury items and stressed the need to promote domestic production to curb imports.

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