Trade deficit widens as remittance increases

KATHMANDU, APR 05, 2013

The country’s trade deficit is growing as the relative income from remittance has contributed in growing consumption among Nepalis.

Nepal received Rs 360 billion ($4 billion) as remittance income in the first seven months of the current fiscal year.

In the review period, trade deficit also widened by Rs 271.2 billion. Data of the first seven months shows that the amount of remittance income and amount of trade deficit is almost perfectly correlated.

The positive correlation shows that both trade deficit and remittance income are moving in near perfect sync.

“Remittance has increased the income of households which is mostly spent in consumption, increasing the demand for commodities, and since Nepal’s manufacturing capacity is pretty limited, demand for imported goods has soared,” said senior economist Dr Chiranjibi Nepal.

“Higher consumption can be good for developed countries but is not beneficial to a country that has to import even the basic necessities,” he added.

Of the total households, 55 per cent receive remittance from members abroad, according to the preliminary report of Nepal Living Standard Survey -III released by the Central Bureau of Statistics.

Of the total remittance received, 79 per cent is consumed by families and only three per cent goes to capital formation, with the rest being spent on repaying debts and on education, according to the National Migration Survey.

“Nepal is suffering from the Dutch disease brought in by remittance, as it has contributed in the expansion of consumption without actually boosting national productivity,” added Dr Nepal.

Dutch disease refers to the situation in which an economy actually suffers due to increase in income, mostly arising from a large inflow of foreign exchange. The concept is related to an increase in exploitation of natural resources and consequent decline in manufacturing sector.

However, in many developing countries like Nepal, increase in labour export for remittance is showing a detrimental effect in the overall development in the long run.

In the last fiscal year, Nepal received remittance worth Rs 360 billion, while its export earnings stood at Rs 72 billion and it imported goods worth Rs 462 billion.

Likewise, the manufacturing sector contributed a mere Rs 95 billion in the Gross Domestic Product (GDP) worth. The industrial sector — that is considered a mass employment generator — witnessed a growth of 1.69 per cent, while remittance income surged by 41 per cent.

“Since the country’s balance of payments situation is in surplus and foreign reserves are also swelling thanks to remittance, policy makers are complacent as there is not much pressure to create a conducive and productive environment to create jobs,” said Dr Nepal.

“The more the income through exported labour, the more the government will encourage Nepalis to go abroad for work, while the home turf becomes barren and without able manpower,” he added.

According to the Department of Foreign Employment, a little over 155,000 Nepalis have left for foreign employment by the first half of this fiscal year, which is a 20.4 per cent increment in comparison to that of the previous year.

At present, 52.8 per cent of the total households have at least one absentee member.

Increasing unemployment has not only fuelled the migrant outflow but also helped widen the trade deficit as the the remittance they have been sending is widely spent on consumption rather than on capital formation.

According to the Central Bureau of Statistics, only four per cent of the remittance is used in capital formation, which needs to be increased to strengthen the economy.

Source: THT

Trade deficit with India increases

KATHMANDU, DEC 13, 2012

In the first three months of the current fiscal year, total trade deficit with India has increased to 42.7 per cent.

“Trade deficit with India has increased by 42.7 per cent during the review period in contrast to a decline by 1.2 per cent in the same period last year,” states the central bank data.

Meanwhile, total trade deficit with other countries increased by 37.5 per cent as compared to an increase of 27.7 per cent during the same period the previous year. Total trade deficit during the first three months has increased by 40.8 per cent to Rs 115.75 billion.

According to the central bank’s review of the first three months, total export to India increased by six per cent as compared to an increase of 12.9 per cent the previous year. The export of GI pipes, jute sackings, polyester yarn, textiles, juice and pashmina, among others, increased to India. Whereas the export of handicraft goods, readymade garments, paper, pulses, etc, observed a fall during the first three months.

Meanwhile, total imports from India went up by 36 per cent during the review period as compared to an increase of 1.1 per cent in the same period last fiscal year, states the central bank data.

According to it, imports from India has increased primarily owing to an increase in the import of petroleum products, MS billet, chemical fertilisers, cement and rice, among others.

Exports to other countries increased by 31 per cent as compared to a slight increase of 0.6 per cent in the same period of the previous year. Likewise, exports to other countries went up primarily due to an increase in the export of pulses, tanned skin

and readymade leather goods, among others.

Imports from other countries increased by 36.3 per cent as compared to an increase of 21.9 per cent in the corresponding period of the previous year.

Imports from other countries increased mainly because of an increase in the import of pipe and pipe fittings, telecommunication equipment, gold, readymade garments and edible oil, among others. Due to the increase in imports, the ratio of exports to imports declined to 15.2 per cent in the review period from 18 per cent a year ago.

Source: THT

BoP surplus falls owing to widening trade deficit

KATHMANDU, OCt 1, 2012

The balance of payment (BoP) surplus fell in the first month of the current fiscal year as the country´s trade deficit widened.
The overall BoP, the country´s transaction with other nations, hit a surplus of Rs 3.85 billion in the one-month period through Aug 16, which was lower than the surplus of Rs 8.10 billion recorded in the same period last fiscal year.

“The low level of surplus is primarily due to a substantial rise in the merchandise import in the review period,” the latest macroeconomic report published by Nepal Rastra Bank on Sunday shows.

Although the pressure created by hike in imports was cushioned by 54.6 percent hike in workers´ remittances, it was not enough to retain the surplus of the last fiscal year.

In the first month of the current fiscal year, Nepalis working abroad sent Rs 33.81 billion to the country. In terms of US dollar, workers´ remittances increased by 24.4 percent to $381 million. Likewise, foreign direct investment of Rs 457 million was also recorded in the review period, which helped to post a BoP surplus despite widening trade deficit.

Nepal´s trade deficit surged by 49.4 percent to Rs 39.78 billion in the first month of the current fiscal year, as the country´s imports of merchandise goods exceeded those of exports. Total trade deficit had risen by a marginal 4.9 percent in the same period last fiscal year.
The latest macroeconomic report of Nepal Rastra Bank shows that the country´s trade deficit with India increased by 58.9 percent in the one-month period through August 16 as against the decline of 8.5 percent recorded in the same period last year. Trade deficit with other countries, on the other hand, increased by 36.3 percent in the first month of the current fiscal year.

In the one-month period, the country´s merchandise imports reported a growth of 43.7 percent to Rs 46.98 billion, as against the growth of 7.1 percent in the same period last fiscal year. “The total imports increased in the review period primarily due to a sharp increase in imports from both India and other countries,” the report says.

Imports from India, for instance, went up by 48.1 percent in the first month, in contrast to a decline of 4.3 percent recorded in the same period last fiscal year. Among goods that were shipped in from India, imports of chemical fertilizers shot up by 610 percent in the first month, while that of cement surged by 183.2 percent. Likewise, imports of baby food cum milk products, hot-rolled sheet in coil and plastic utensils surged by 334.1 percent, 371.3 percent and 299.5 percent, respectively.

Among imports from other countries, edible oil, petroleum products and readymade garments went up by 962.1 percent, 568.7 percent and 569.4 percent, respectively. Hike in imports of merchandise goods pushed up total imports from third countries by 37.2 percent in the one-month period.

In contrast to the rise in imports of these goods, the country´s merchandise exports in the first month of the current fiscal year rose by mere 18.5 percent to Rs 7.20 billion. Exports had increased by 18.4 percent to Rs 6.07 billion in the same period last year.
The Rastra Bank report shows that exports to India marked a growth of 5.7 percent in the first month, compared to an increase of 17.1 percent in the same period last year.

“Slow growth of export to India is attributed to the decline in the export of thread, MS pipe and zinc sheets, among others, although exports of GI pipe, jute sackings, polyester yarn, textiles and cardamom, among others went up during the period,” the report shows.
Exports to other countries, meanwhile, grew by 42.1 percent in the first month as against the increment of 20.9 percent in the same period last fiscal year. These consignments mainly comprised pulses, tanned skin and readymade leather goods, among others.


Forex reserve swells

The gross foreign exchange reserve increased by 1.9 percent to Rs 447.86 billion in mid-Aug from Rs 439.46 billion as of mid-July. Such reserve had increased by 4.2 percent to Rs 283.72 billion in the same period of the last fiscal year. The current level of reserve is sufficient to finance merchandise imports of 9.8 months and merchandise and service imports of 8.3 months.

Source: Republica

M Shakya calls for policy reform in hydropower

KATHMANDU, SEP 16, 2012

Minister for Environment, Science and Technology Dr Keshab Man Shakya has stressed the need of bringing policy reforms so as to attract investors in hydropower sector.

Speaking at an Annual General Meeting (AGM) of Federation of Nepal Electricity Entrepreneurs here on Saturday, Minister Shakya said policy hassles have cost much in bringing hydropower investors into confidence.

'Investment-friendly environment has not been enabled due to waning political will power. It is necessary that all the political parties should pay attention to that end', he added.

Vice-chairperson of Federation of Nepalese Chambers of Commerce and Industry (FNNCI) Pashupati Murarka accused the government of showing double standard by fixing food price, though Nepal has adopted open market economy.

Chairperson of Hydro Development Forum Gyanendra Lal Pradhan said prevalence of 18-hour-long load-shedding in the country is caused by the government's sheer negligence towards hydropower generation and that has also resulted in annual trade deficit of Rs 35 billion.

Likewise, Federation Chairperson Ram Bahadur Shrestha demanded the government exempt VAT and customs duty in CFL and battery.

It was informed at the programme that nearly 90 per cent of the total supply of electric goods have been imported from outside.

 

 

Source: THT

PM concerns over ballooning trade deficit

KATHMANDU, Aug 20, 2012

The Prime Minister Baburam Bhattarai has expressed concern over the ballooning trade deficit and instructed concerned officials to come up with plans to increase the export volume.

Bhattarai, who is also looking after the portfolio of the Ministry of Commerce and Supplies (MoCS), stressed on controlling imports of goods which have significantly contributed to country´s trade deficit.

“It is a huge challenge before us to rein in growing trade deficit. Hence, we must increase supplies capacity by boosting our domestic production. I urge you all concerned officials to devise plans and programs that would be catalyst for bringing down the ballooning trade deficit,” said Bhattarai,while chairing a meeting on Sunday to review programs implemented under the MoCS during the fiscal year 2011/12.

Bhattarai also underlined the need to run the Public Enterprises (PEs) by introducing effective management system that would increase their business performance and lessen financial burden on the government.

“While reviewing performance of the PEs, we have no reason to either become hopeless or over optimistic, we have sufficient room to improve their business in those state-run enterprises. The government´s fresh report shows that out of the 37 PEs operating so far, 21 have registered profit and 14 suffered loss during the fiscal year 2010/11. However, one PE has not yet submitted its audited financial statement to the government.

National Planning Commission Vice Chairman Deependra Bahadur Kshetry also said the country had no alternative but to increasing domestic production to bring down the soaring trade deficit on the back of country´s weak supply capacity due to persisting industrial slowdown.

PM Bhattarai also instructed concerned officials to come up with measures to ensure smooth supplies of essential commodities for the upcoming festive season. “As chances of black-marketeering of essential goods, mainly food commodities, are very high during the festive season, we have to start our preparation at once to ensure normal supplies during that time,” said Bhattarai.

He also directed to strengthen the market monitoring system to ensure quality and reasonable pricing of goods in the markets across the country.

Source: Republica

China ready to support Nepal bring down trade deficit

KATHMANDU, Aug 14, 2012

China has expressed readiness to support Nepal to bring down the ballooning trade deficit with the world´s second largest economy.

Responding to Nepali concerns during Nepal-China Consultative Meeting on Monday in Kathmandu, Chinese officials were positive to support development of infrastructure, facilitate market access for higher number of Nepali goods, simplification of customs procedures by improving customs facilities, among others, said a foreign ministry official.

“Both sides discussed a gamut of issues, especially economic and trade issues subsisting between the two countries. We are encouraged by the positive responses from the Chinese officials to support us to narrow down our trade deficit with our northern neighbor,” a high level source at the Ministry of Foreign Affairs (MoAC) told Republica on Monday.

During the fiscal year 2010/11, Nepal recorded its highest ever trade deficit with China which rose to Rs 44 billion.

Foreign Secretary Durga Prasad Bhattarai and Chinese Deputy Foreign Minister Fu Ying led their respective teams.

Officials from finance, agriculture, energy, industry, commerce, health, home, local development, education, tourism ministries and National Planning Commission were present at the meeting.

“During the meeting we also reviewed the implementation of various projects supported by China and explored the potential sectors for increasing Chinese investment in Nepal,” said the source.

Chinese side had expressed interest to import more Nepali agriculture products as well as Nepali handicrafts which are gaining popularity there.

Nepal has been exporting cement, iron rods, noodles, refined flour, handicrafts, carpet, pashmina, silver ornaments, incense and medicines, among others to the world´s second largest economy. Similarly, electronics, garments, electrical goods, shoes, beverage and vehicles are the major imports from the northern neighbor.

Source also said both sides extensively reviewed bi-lateral issues on development of infrastructure and hydropower, resumption of Kathmandu-Lahasa bus service, simplification of visa to Nepalis to visit China, direct flight between major cities of both countries, extension of ring road, Trishuli A hydropower and construction Pokhara International Airport as well as better investment climate in Nepal.

Nepal had imported goods worth Rs 45.63 billion from China against the export amounting Rs 746 million during the fiscal year 2010/11.

Nepal has been exporting only around 360 goods to China though the world´s second largest economy has been providing zero tariff access to 4721 items of goods from Least Developed Countries including Nepal.

Source: Republica

Nepal to raise trade deficit issues in secy level meet

KATHMANDU, AUG 13, 2012

Nepal is expected to raise the issues of reducing trade deficit between Nepal and China with top priority during a meeting of the Nepal-China Foreign Secretary Level Mechanism scheduled to be held in the capital on Monday.

Talking to RSS, Joint Secretary at the Commerce and Supplies Ministry Ngaindra Prasad Upadhyay said at the meeting, the Nepali side is expected to raise the issues regarding how to minimize an enormous trade imbalance between the two countries.

The Chinese side will be requested to make arrangements for smooth export of Nepali products to China, said Joint Secretary Upadhaya.

The State is responsible for ensuring duty free market and market facilitation, he said and stressed that the business community also pay a heed towards trade diversification since the conventional products are not sufficient for the development of trade sector.

According to Trade Promotion Center, annual trade deficit of Nepal with China stands at Rs. 45 billion. Nepal exports goods worth Rs. one billion to China every year.

Nepal imports cement, iron rods and noodles from Tibet, whereas it exports handicraft items, carpet, pashmina, silver ornaments, vegetable ghee and incense sticks to China.

Expansion of mutual contact, development of physical infrastructure, investment in hydropower sector, reopening of Kathmandu-Lhasa Bus Service, direct flights between different cities in the two countries and construction of a ring road in Kathmandu are other agendas of the meeting, it is learnt.

Providing soft loans for the Upper Trishuli-3 'A' Hydro Project and international airport in Pokhara are in the agenda of the meeting, the ministry said.

The Nepali team to be led by Foreign Secretary Durga Prasad Bhattarai will be accompanied by senior officers of the Ministries of Finance, Agriculture, Energy, Industry, Commerce and Supplies, Health, Home, Local Development, Education, Tourism and National Planning Commission (NPC).

As the meeting of the mechanism is regular, it will not take any decision and no agreement will be signed. It is learnt that the issues raised in the four- yearly meeting will be included in the future action plan by the officials of both the countries.

Source: THT

American Dollar Highest against NC

Rupee plunges to all-time low against US dollar

KATHMANDU, MAY 18, 2012


The Nepali rupee touched the lowest level against US dollar on Friday as the central bank determined the selling price of per dollar at Rs 87.40 surpassing 86.39 — much lower than the previous record of Rs 86.37 on Dec 16, 2011.

The fall of the rupee against the dollar is mainly due to the sharp devaluation of the Indian currency, with which the domestic currency is pegged. The Indian currency touched  its record low value against the dollar on Friday and so, the NRB fixed the record low value of domestic currency against the dollar.

A senior NRB official said that there is a little chance of deviation while fixing value of the Nepali currency against dollar compared to the Indian currency value against the greenback. “We determine the value of Nepali currency against dollar on the basis of the value of Indian currency at around 11am every day,” said the central bank official. “That’s why there remains a little chance of marginal deviation.”

The partially convertible Indian rupee fell to a record low of 54.60 against a dollar in the intra-day, surpassing Wednesday's low of 54.52. Indian media have blamed  worsening global risk environment and concerns about India’s fiscal and economic challenges for the weakening Indian currency.

But Indians living abroad are rushing to send money home as they see an opportunity to get more value of their foreign cash get higher return in their homeland. some Indians working abroad say their relatives will receive a bigger amount of rupees for the same usual amount that they transfer regularly.

NRB officials say that the depreciation of domestic currency is good for the export but it will increase the cost of third-country imports as more domestic currency is required to support import bills. Importers are also hesitant to make decision on import due to strengthening of the dollar against the Nepali currency.

An importer dealing with electronics said that he is facing difficulty making a decision as importing electronics at high cost may not be wise given the intense competition in the market. “Those who have stocks of materials imported at cheaper rate may attract more customers while those paying high have to suffer,” said the trader.

With imports from third countries accounting for around 33 percent of the total imports, the economy may face inflationary pressure. Nepal imported goods worth Rs 261.63 billion from India in the last fiscal, while those from third countries stood at Rs 133.27 billion. As Nepali industries import raw materials from India by paying US dollars, they will have to bear additional burden.

However, the rising number of migrant workers are likely to send more remittance when the Nepali currency is weak.

The weakening rupee also means the Nepal Electricity Authority will have to pay more for electricity from Bhotekeshi and Khimti hydropower projects, both of whom have power purchase agreements in dollars. Nepal will also have to pay more while repaying its external loans.

Source: The Kathmandu Post

Trade deficit with China higher than overall rate

KATHMANDU, APR 28, 2012
Nepal’s trade deficit with China is growing faster than the country’s overall trade deficit, said South Asia Watch on Trade Economics and Environment (Sawtee).

According to a study conducted by Sawtee, the trade deficit with China has been growing at an average rate of 27.1 percent annually over the last seven years while the overall trade deficit has increased by 21.9 percent.

In the seven years since 2003-04, China’s share in Nepal’s global export and import has diminished to 1.4 and 11.7 percent respectively. This shows that Nepal’s exports to China have decreased by an average of 3.1 percent annually during the period. Likewise, the country’s imports from the northern neighbour has been increasing by an average of 3.6 percent annually over the same period. Earlier in 2003-04, China’s share in Nepal’s total exports and imports was 4.5 and 8.1 percent respectively.

The research study carried out by Tula Raj Basyal, former senior economic adviser to the Finance Ministry, blames various non-tariff barriers for the lower exports despite the special preferential tariff treatment for 4,721 products. “The value addition requirement of 40 percent is one of the major non-tariff barriers,” said the report. According to experts, a criterion of 40 percent value addition is unreasonable for an LDC like Nepal given its industrial capacity. “With our industrial structure and capacity, it is difficult to produce goods with 40 percent of value addition,” said Ratnaker Adhikari, an international trade expert. “Trade barriers in China like quarantine are pretty unpredictable.”

The report also attributes the deeper constraints in the supply capacity like reduced production and limited exportable surplus for Nepal’s growing trade deficit with China. It also blamed other factors including delays and higher transportation costs, delivery complexities like hassles at customs points, rising uncertainties and non-transparency of quarantine requirements, production of lower appealing items both in price and quality, and the government’s apathy towards improving trade relations.

The report recommends expanding production of products having higher value addition and possessing higher export potential to China. As per the report, vegetables, tea, iron and steel products, herbs, lentils, ghee, ginger, aluminium products, handicraft items and ornamental ceramic products, among others, have a higher market demand in China, and the export of these products should be increased.

The report has also recommended that the government ensure necessary infrastructure like roads, transport arrangements, container yards, quarantine facilities and technological improvements to minimize the trade deficit.

Tanka Karki, former Nepali ambassador to China, said that Nepal could benefit immensely from China if it promoted Buddhism and trade. He said the government should try to increase Chinese aid to Nepal and  encourage the Nepali private sector to work in cooperation with Chinese investors to invest in Nepal.

Source: Kantipur