With 5kg gold more each day, trade deficit to increase further

Along with tight security measures against smuggling, the government has raised the import quota of yellow metal by 5 kg more per day. The country now will import 25 kg of gold but economists fear further gap in the country’s trade deficit. Last week, the Ministry of Industry, Commerce and Supplies had given Nepal Rastra Bank (NRB) the go-ahead to increase the daily quota on import of the precious yellow metal to 25 kg from 20 kg earlier. TKP reports that as the payment for gold import must be settled in US dollar, it will worsen the balance of payments (BoP) situation of the country. However, the decision could help control the possible smuggling of gold when demand soars during festival season.The move to increase the quota is good for the short term but could create negative consequences in the long term. According to the Current Macroeconomic and Financial Situation of Nepal released by the NRB, the BoP deficit widened to Rs24.77 billion in the mid-July to mid-August period, the first month of the current fiscal year. In the same period last fiscal year, Nepal’s BoP deficit stood at Rs3.29 billion.

Trade balance, which is one of the most important components of BoP, is not in favour of the country since a long time due to soaring imports and slow growth in export earnings. In the first month of the current fiscal year, Nepal’s imports bill jumped to Rs120 billion against export earnings of Rs6.92 billion. With the rise in negative BoP balance, the foreign exchange reserve in the country also declined by 0.9 percent to Rs1,092.87 billion in the first month of this fiscal year. It was Rs1,102.59 billion a month ago. The NRB data shows that the country imported Rs32 billion worth of gold in the last fiscal year, up 17 percent.

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