Nepal turns to citizens abroad to help build forex reserves

Nepal is asking citizens living abroad to deposit funds in domestic banks as part of efforts to ensure the financial system has enough liquidity and to preserve foreign exchange reserves, finance minister Janardan Sharma has said.

Speaking to Reuters on Saturday, he denied Nepal was facing an economic crisis despite the effect of soaring commodity prices as the tourist industry, a key source of revenues, struggles to recover after the COVID-19 pandemic.

Nepal, wedged between China and India, this month imposed curbs on luxury goods imports to rein in capital outflows. Foreign exchange reserves fell more than 18 percent to $9.6bn as of mid-March from mid-July – enough for around six months of imports.

By depositing their savings in Nepal, overseas Nepalis would continue to “maintain their link as well as benefit from six to seven percent interest” offered by Nepali banks, Sharma said.

Sharma said the economy did not face a crisis and Nepal’s situation could not be compared with Sri Lanka. That South Asian country is facing its worst economic crisis in decades and anti-government protests.

In Nepal, remittances by overseas workers, which constitute nearly a quarter of the economy and are crucial for external payments, fell three percent to $5.3bn between mid-July to mid-March, compared with a five percent increase in the same period a year earlier.

Earnings from tourism, which fell sharply after the start of the pandemic in 2020, are slowly picking up, but remain well below pre-COVID levels.

Sharma said if 100,000 Nepali nationals living abroad deposited $10,000 each in Nepali banks, it could go a long way to help Nepal overcome the current liquidity constraints.

Nepal has also decided to accept $659m in aid from the United States and about $150m in soft loans from the World Bank, Sharma said.

“The money to be received from the United States over five years is a (non-refundable) grant,” he said.