Nepal banned imports of cars, alcohol, tobacco and other luxury items and shortened its work week to help conserve its dwindling supply of foreign exchange.

A notice published in the government gazette said only emergency vehicles can be imported. No imports of any type of alcohol or tobacco products, large-engine motorcycles and mobile phones costing over $600 dollars will be allowed. The move followed an earlier import ban on cars and cosmetics.

The ban, in effect until the end of the fiscal year in mid-July, also forbids imports of toys, playing cards and diamonds.

Without such drastic measures, the foreign currency reserves needed to import almost everything will last only a few more months.

Nepal's main sources of foreign currency are tourism, remittances from overseas workers and foreign aid.

Hundreds of thousands of foreign tourists usually visit the Himalayan country every year, but the number of visitors plunged during the coronavirus pandemic.

Rising prices for oil have added to pressure on Nepal's foreign reserves. So to conserve fuel the government would reduce the work week from five and a half days to five.

However the crisis is already easing as tourists resume visits and more Nepalese go overseas to work, sending their earnings home.

Nepal is facing burnout on a macroeconomic scale.

The pandemic has drained Kathmandu's foreign reserves to dangerous lows, forcing the government to decide what imports it can and can’t afford to bring into the country.

And to save on oil imports—which Nepal needs for transportation, the government decided to shorten its workweek.

Starting May 15, the Nepalese workweek will officially scale down from five and a half days to just five.

Nepal spends roughly $8.2 million a day on fuel imports, and the country's state-owned oil company announced in January that it was effectively bankrupt.

Nepal’s total imports of all goods have increased by 38.6 percent since last July, the start of the country’s fiscal year, to reach $10.7 billion, versus $1.2 billion in exports. Meanwhile foreign exchange reserves have fallen 18 percent over the same period to about $9.6 billion, equal to about six months’ worth of exports.

Nepal gets much of its foreign reserves through remittances made by overseas Nepalese, and the tourism industry. Roughly 60 percent of Nepal’s foreign reserves come from remittances sent by overseas workers, yet remittance flows declined 3 percent between mid-July and mid-March as overseas work dried up. Nepal also gets foreign currency from the tourism industry, which has been hit hard by the Covid pandemic. Just over 150,000 tourists entered Nepal last year, compared to almost 1.2 million in 2019.

Nepal’s balance-of-payments problem comes at the same time as a much more serious foreign exchange crisis hits Sri Lanka. The South Asian island is facing its worst economic crisis in decades, as a rapid decline in its foreign reserves leave it unable to buy necessary goods from overseas and unable to make debt payments to foreign bondholders.

Sri Lankans, frustrated by food and fuel shortages, are now protesting the government, and Sri Lanka’s leaders are currently in negotiations with the International Monetary Fund regarding a bailout to help the country pay back its creditors.

Fortunately, Nepal may not be in quite such dire straits as Sri Lanka. The former country has much less debt, equal to almost 50 percent of GDP. By comparison, Sri Lanka’s debt-to-GDP ratio was 104 percent in 2021.

And tourists are starting to return to the Himalayas, bringing much needed foreign cash to Nepal. In March, Nepal reported 42,000 visitors for the month, the highest monthly total in over two years.

The World Bank in a recent report said higher commodity prices in Nepal are spurred by the war in Ukraine. Transportation prices, construction costs and other consumer prices are rising which will dampen overall demand.

This may shave Nepal’s economic growth by an estimated 0.2 and 0.6 percentage points in the current fiscal year 2021-22 and the next fiscal year 2022-23 from previous projections, the multilateral funding agency said.

With the Russia-Ukraine war raging on, the World Bank has revised Nepal’s growth projection too.

Nepal’s economy, led by recovery of the services sector amid high Covid vaccination rates, is expected to grow by 3.7 percent in the current fiscal year and 4.1 percent in the next year. —News Desk

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