KATHMANDU, Dec 2: 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 requesting to remain unnamed.
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.