Nepal’s foreign exchange reserves are improving but real economy faces headwinds – data, official

KATHMANDU, March 12 (Reuters) – Nepal’s gross foreign exchange reserves rose 10.2% to US$10.50 billion in mid-February, boosted mainly by overseas remittances, to a level that will cover about nine months of imports , the central bank said in a report released on Sunday.

Reserves surged from $9.54 billion in mid-July 2022 when Nepalese working abroad sent money home, data showed. A large part of the flows came from the Middle East, South Korea and Malaysia.

Data from Nepal Rastra Bank (NRB) showed that remittance inflows increased by 16.4% to US$5.30 billion from mid-July 2022 to mid-February 2023, against a 5.3% decline in the same seven-month period 2021/ 22

Nepal normally follows a fiscal year from mid-July to mid-July based on a local calendar.

The central bank has said in the past that its goal is to hold external reserves sufficient to cover imports longer than seven months.

“We are in a comfortable position on the external sector, but there are pressures on the internal front of the economy,” Prakash Kumar Shrestha, head of the central bank’s economic research department, told Reuters.

DOMESTIC SECTOR CONCERNS

Nepal imports the most important goods. A lack of manufacturing facilities due to energy shortages and reduced cash flows to industry have hurt the economy.

Business and industry officials have protested high lending rates in recent weeks, which have now risen to over 16%, compared to around 12% a year ago.

Interest rates have risen after the Nepalese central bank raised interest rates to 8.5% from 7% in July in a bid to tame inflation, which hit a six-year high of 8.56% in June.

Annual inflation fell to 7.88% in mid-February, the bank said.

Companies want to see interest rates in the single digits.

Many small microcredit institution borrowers have stated that high interest rates mean they are unable to repay their loans, which could lead to a series of defaults.

Analysts said there are no “quick fixes” to the real sector’s economic woes. (Reporting by Gopal Sharma Editing by Swati Bhat and Sharon Singleton)