Forex reserves exceed US$ 5 billion

KATHMANDU, Dec 2, 2012

Despite the widening of the trade gap by almost 41 percent, with increased outflow of foreign currency in the form of trade payments, Nepal´s foreign currency reserves jumped by 2.5 percent and crossed the US$ 5 billion mark in the first quarter of this fiscal year, thanks to Nepalis employed abroad remitting more money back home.

“In terms of dollars, the forex reserves that the country held in mid-October, 2012 were US$ 5.08 billion, an all-time high,” said a senior Nepal Rastra Bank (NRB) official.

The country´s reserves in mid-July 2012, when the previous fiscal year ended, were US$ 4.96 billion. Moreover, gross foreign exchange holdings data released by NRB shows that the reserves recorded in mid-October this year were US$ 1.41 billion higher than during the same month last year.

“This is a record growth,” said the NRB official.

What´s more, such expansion has caused the country´s foreign currency reserves to more than double in five years. Nepal´s total foreign currency holdings were US$ 2.50 billion in mid-October 2007, according to NRB.

Officials attributed the rosy forex reserves outlook in mid-October 2012 to a sharp rise in money that Nepalis brought back home in remittances and pensions.

“Remittance receipts during the first quarter of this year crossed US$ 1.15 billion. Such receipts were US$ 971 million in the same period last year,” said the official, adding that the country recorded a hefty 19 percent growth in remittances received in dollar terms during the first quarter of fiscal year 2012/13.

Likewise, Nepalis who retired from service in foreign lands also brought in US$ 105.5 million in pensions during the quarter. The figure was US$ 85.22 million in the same period last year.

Officials said such strong forex reserves have created an environment whereby Nepal can easily persuade foreign investors to put their money into this country. This has also bolstered Nepal´s capacity to execute large development projects.

On the flip side, such rise in foreign currency reserves is expected to step up the money supply, causing inflation to rally.

Amid higher import growth and low remittance receipts, Nepal´s foreign currency reserves at the time of the post-2008 global financial crisis were hovering between US$ 3.4 billion and US$ 3.7 billion till 2010/11. But since September 2011, the reserves had surpassed the US$ 4-billion mark amid a strong rebound in remittance receipts, exports and tourism income during Nepal Tourism Year 2011.

In terms of the Nepali rupee, however, the total forex holdings of the country dropped by 2.2 percent to Rs 429.94 billion in mid-October, compared to mid-July 2012. The drop is attributed to the strengthening of the rupee vis-à-vis the US dollar over the period.

According to NRB, the exchange rate for the dollar was Rs 84.77 in the month ending mid-October, whereas it was Rs 89.50 in mid-July 2012.

Source: Republica

Nepal 2nd largest receiver among LDCs

KATHMANDU, NOV 30 - 2012

Nepal is among the top three least developed countries ( LDCs ) in terms of remittance inflows.

Nepal, Bangladesh and Sudan accounted for 66 percent of the total remittance ($27 billion) flowing into 48 LDCs from 2009 to 2011, according to the Least Developed Countries Report 2012 released by the United Nations Conference on Trade and Development (UNCTAD) on Thursday. Their share was 44 percent in 2001.

Bangladesh topped the charts, receiving 44 percent of the total remittance, followed by Nepal and Sudan. The report says from 2009 through 2011, Nepal received more foreign exchange from remittances than from exports. Also, Nepal is among the nine LDCs where remittance inflows exceeded receipts of both foreign direct investment (FDI) and official development assistance (ODA) from 2008 to 2010.

Remittance has played a key role in reducing poverty in LDCs over the years, but has ambiguous effects on inequality, according to the report. “Before remitting, one needs to migrate and migration has costs. Therefore, only moderately poor citizens of LDC can migrate, whereas the poorest of the poor cannot migrate,” says the report. “It contributes to the inequality.”

According to the report, it takes around $1,200 for a Nepali labour to migrate to Qatar—one of the major destinations of Nepali migrant workers—and it takes around seven months for the migrant to earn that money back. Nepal Rastra Bank Governor Yuvraj Khatiwada, unveiling the report here on Thursday, said the aforementioned amount was beyond the paying capacity of the poor Nepali and that the government must find a way to facilitate them by providing foreign employment loans.

Another vice of remittance for LDCs has been brain drain, with some 2 million highly educated citizens from LDCs living abroad. Nevertheless, in case of Nepal, it has not been an issue because study shows most of the Nepali migrant workers are unskilled. However, remittance, of late, has spurred demand for education in Nepal and in the near future, it will contribute to the supply of skilled labour.

Despite contributing around 22 percent to the GDP, remittance has not been utilised for the country’s development. With 80 percent of total remittance being spent for consumption, it has not contributed to capital formation—a much needed requirement to increase investment and attain economic growth.

“Of the total remittance, a meagre 2 percent is being utilised for capital formation in Nepal,” said Basudeb Guha Khasnobis, senior economist at UNDP. However, with a huge chunk of remittance entering the country through formal financial channels, it has provided enough liquidity to banks and financial institutions. “At present, around three-fourth of the total remittance comes from formal channels,” said Khatiwada.

The governor said the country should not solely rely on remittance and should think about alternatives to finance imports. “We successfully withstood the global crisis in 2009, but a similar crisis might not be of the same nature in future,” he said.

Source: The Kathmandu Post

Dutch disease starts to take toll on economy

KATHMANDU, AUG 17, 2012

The country seems to have started showing the Dutch syndrome due to the rise in huge inflow of remittance — that has swelled not only the foreign currency reserve but also the Balance of Payment — and the fall in the manufacturing sector’s contribution to the economy, coupled with ballooning trade deficit and real exchange rate appreciation.

“High remittance inflow into the country has led to the emergence of Dutch disease effect and fostered policy complacency among policymakers, particularly on the need to formulate and implement reforms that would improve investment climate, increase job opportunities domestically, and channel remittance to productive sectors,” according to senior economist Prof Dr Bishwhambher Pyakuryal.

The current structural changes in the economy revealed by the Central Bureau of Statistics data needs to be taken seriously and should start addressing policy laxity in improving weaknesses and facilitating a sound investment climate by trade facilitation that could result in boosting of the shrinking manufacturing and exports sector,” he said, adding that the biggest loser has been the tradable sector, agriculture — that has 33 per cent contribution to the GDP — and manufacturing sectors, which have seen a steady decline in production as a share of GDP.”

He cautioned that high inflow of remittance should not be considered as a substitute to formulating and implementing growth and job-creating investment policy reforms. “Productivity should be increased in both tradable and non-tradable sectors, but if the country continues to experience real exchange rate appreciation, then spending should be diverted to sectors that boost productive capacities of non-tradable and non-resource tradable sectors,” the senior economist added.

Due to lack of job opportunities — push factor — back at home due to incumbent government’s inefficiency that has led to deindustralisation in the country and higher pay overseas — pull factor — Nepalis especially unskilled, low and medium skilled workforce have been emigrating since the last one decade. During fiscal year 2011-12, a total of 530,805 Nepalis migrated in search of greener pastures to the Gulf and Malaysia due to the economic boom in the Middle East that led to an increase in demand for workers.

The massive outflow of migrant workers also helped increase the inflow of remittance to over three-and-a-half times to Rs 320.37 billion — in the first 11 months of the last fiscal year — from Rs 100.14 billion in fiscal year 2006-07. The Central Bureau of Statistics revealed that only 2.4 per cent of the remittance is spent on capital formation leading to more consumption-led imports.

“Remittance has financed imports, leading to an unsustainably high merchandise trade deficit, which has reached as high as 26 per cent of GDP,” another trade researcher Chandan Sapkota, said, adding that the remittance-financed high imports have also been crucial for revenue generation as over 50 per cent of total tax revenue is coming from consumption tax. The country’s import has increased by four times to Rs 419.57 billion — in the first 11 months of the last fiscal year — from Rs 125.5 billion in the fiscal year 2002-03.

However, the export has increased to Rs 67.21 billion — in the first 11 months of the last fiscal year — from Rs 49.2 billion in a decade, according to central bank data. “Whereas the export had recorded Rs 67.70 billion in 2008-09, which has seen a decline in the last three fiscal years.”



According to the household survey 2010-11, about 56 per cent of households received remittance, both from internal as well as external sources.

From 2000-01, when remittance started increasing dramatically, merchandise export as a share of GDP also started to consistently decline widening the trade deficit gap, he said, adding that reforming the domestic investment climate is key to entice private sector investment with an objective to spur growth and employment opportunities that will provide a safe landing to the overdependence on remittance and dissociation from its negative impact.

Though remittance has been crucial in reducing poverty and inequality in the last one decade as it has boosted expenditure capacities of poor households and widened their consumption basket, it has also boosted foreign exchange reserves, largely contributed to keeping balance of payments in surplus, and increased gross national savings.

But remittance has also been responsible for the Dutch disease effect, which is the loss of competitiveness of non-resource tradable sector —

exports sector — due to the appreciation of the exchange rate after substantial inflow of resources from one particular sector –– remittance, according to Sapkota.

“The rising remittance inflow has allowed the government to ignore many pressing policy decisions and assume that everything is normal,” according to former finance minister Dr Prakash Chandra Lohani. “The feeling of normality allows politicians in the country to continue their games of political brinkmanship and the never ending discussion on the promulgation of a new constitution,” he said, adding that logically we should have used this ‘time cushion’ provided by the inflow of remittance to build the productive capacity of the economy so that we are able to compete in the tradable sectors and in areas where we claim to have competitive advantage. “The caretaker prime minister Dr Baburam Bhattarai’s date expired pills cannot help recover the economy.”

What is Dutch disease

In economics, the Dutch disease is a concept that explains the apparent relationship between the increase in exploitation of natural resources and a decline in the manufacturing sector. The mechanism is that an increase in revenues from natural resources — or by any economic change that provides a large increase in the availability of foreign exchange to the economy, a sharp increase in export prices, foreign direct investment or inflows of foreign aid — will make a nation’s currency stronger as compared to that of other nations — manifest in an exchange rate — resulting in the nation’s other exports becoming more expensive for other countries to buy, making the manufacturing sector less competitive. While it most often refers

to natural resource discovery, it can also refer to ‘any development that results in a large inflow of foreign currency, including a sharp surge in natural resource prices, foreign assistance, and foreign direct investment’. The term was coined in 1977 by The Economist to describe the decline of manufacturing sector in the Netherlands after the discovery of a large natural gas field in 1959. — Wikipedia

Source: THT

NDEX Money Expo in the offing

KATHMANDU, July 17, 2012

A three-day NDEX Money Expo 2012 is being held in the capital from August 31 to September 2. Arthik Abhiyan daily and Jamb Technologies in association with Minds Nepal and Morningstar Investment Services are organizing the event.

According to the organizers, the expo is a unique business-networking event for the companies of financial sectors and their constituents. It provides investors a valuable opportunity to speak directly with the nation´s top financial expert related to trading and investment, banking, insurance, mutual funds, stocks, tax strategies, commodities and personal financial planning.

Speaking at a press meet held on Monday, Suraj Vaidya, president of Federation of Nepalese Chamber of Commerce and Industries, said that the expo will help in motivating the investors and bring in investment by creating environment for interaction between different industrialists and business giants. “Events like this should be organized in regular intervals as they will definitely help improve investment climate in the country,” said Radesh Pant, CEO of Investment Board.

The expo will have more than 122 stalls of different regulatory bodies, stock and commodity exchanges, banks and financial institutions, merchant bankers, investment companies, brokerage companies, remittance, insurance companies, depositors and clearing houses, portfolio management companies, financial knowledge management and training institutes, microfinance and cooperatives, traders and investors associations and clubs and financial domain technologies among others.

Besides, various other events like seminar and speeches from financial experts, regulators, analyst and top investors, art exhibition and quiz contest, national and international currency show, trading and investment movie show will also be organized at the sidelines of the expo.
The organizers are expecting footfall of more than 300,000.

Source: Republica

Remittances soar 74 percent, exports rebound: NRB

Nepal has witnessed a strong growth in remittance inflow and exports -- two critical sectors of the economy -- in the first two months of the current fiscal year, says a report of Nepal Rastra Bank (NRB).During the period, the country received Rs. 31.88 billion in remittances from Nepalis working abroad. The figure is a whopping 74 percent rise over the receipts for the same period last year. The gain has been attributed to an increase in the number of Nepalis leaving for overseas jobs and also to depreciation of the Nepali rupee vis-à-vis the US dollar. During the two months, the number of Nepali foreign workers grew by 17.75 percent and the Nepali currency lost value by 6.48 percent.

Likewise, the country's total exports bounced back by more than one-third and touched Rs. 13.46 billion in the first two months of 2008/09, compared to a decline of 3 percent in the same period last year. Of the total exports, sales to India -- Nepal's largest market - went up by over 12 percent to reach Rs. 7.28 billion. Exports to other countries also soared by 82 percent and amounted to Rs. 6.17 billion. The NRB report released on Friday has credited the rise to an upsurge in exports of readymade garments, copper wire, tooth paste and zinc sheets to India and increased sales of Nepali pulses, woollen carpets, herbs and pashmina in other countries. Propelled by strong consumption on the back of greater remittances, Nepal's total imports also rose by 43.3 percent during the period and touched Rs. 48.22 billion. "Imports from India grew by over 34 percent to Rs. 26.85 billion and from other countries by 56.5 percent to Rs. 21.37 billion," says the report. With imports growing faster than exports, the country's trade deficit swelled by over 46 percent to reach Rs. 34.76 billion.

The report portrays a gloomy picture for consumers, as consumer inflation rose to 13.5 percent in mid-September 2008 compared to mid-September 2007. Prices of food items and beverages increased by 14.2 percent while non-food items and services went up by 12.8 percent during the period. "A sharp rise in prices were recorded in the case of sugar, oil, ghee, grains, rice, pulses, restaurant meals, milk and milk products, meat, fish and eggs and spices," says the report. The cost of transportation and communication and housing goods and services rose by 23.1 percent and 18.1 percent respectively in mid-September 2008 compared to a year ago.