Import cuts alone will not increase foreign exchange reserves

The Covid-19 outbreak at the end of 2076 has affected every sector of the country’s economy that was in the phase of recovery. However, now the Covid-19 outbreak is under control.

 Now, it has become the main responsibility of the all responsible parties to be active in reviving the economy from its negative impact. Therefore, the state should immediately announce a special package of economic development such as refinancing, rescheduling and revival of the economy and should continue and expand it through the budget of 2079/80 to be released in the near future.

 At present we are facing a problem of shortage of power. There is also an acute shortage of liquidity. Interest rates have increased. The current war in the Eastern Europe has caused problems in the supply of some essential goodds, including petroleum, and price hike.

 The capital market, which is increasing the participation of the common people and is just beginning to grow, has started slowing down suddenly. This sector, which can help in mobilizing public saving in a big way by accumulating the small capital of the common citizens, should be encouraged. As the condition of the stock market also attracts foreign investment, it is very important for the responsible parties to pay attention to its promotion.

 The country’s total exports have not been able to support even the import of petroleum products. The tourism sector has come to a standstill for the past few years. Remittances have declined in recent times. The government have adopted a strategy of reducing imports of certain commodities as the continuous increase in imports has led to a decline in foreign exchange reserves. But discouraging imports of capital goods, commodities used as industrial raw materials, and ever-increasing value-added and appreciated goods also sometimes add negative effects on the economy. Also, unless the source of convertible foreign exchange earnings is increased, import cuts alone will not increase foreign exchange reserves.

 The country’s export is shrinking. Traditional items are disappearing. New items have not appeared. Production and productivity are declining. Costs are rising. Large quantities of agricultural and forest products are also being imported. As import-oriented and consumer-oriented trends increase, imbalances in foreign trade increase and the economy weakens. Therefore, it is necessary to set the target of import substitution in every sector by encouraging the consumption of indigenous products and to adopt all measures for export promotion.

 The country is facing huge deficit in foreign trade every year. According to the data made public by the Department of Customs, in the first 8 months of the current Fiscal Year, the total export of goods increased by Rs. 1 Kharba 47 Arba 74 crores and imports stood at Rs. 13 Kharba 8 Arba 73 crores. Total merchandise trade deficit increased by 34.5 percent to Rs. 11 Kharba 60 Arba 98 Crores. According to the statement, the total merchandise trade is Rs. 14 Kharba 56 Arba 64 Crores. It accounts for 90 percent of imports and 10 percent of exports.

 It is not possible to face such a huge loss by exporting traditional goods alone. It is imperative to increase Nepal’s access to the international market with new strategies for exporting high value new goods, commodities, and market diversification. At present, India and the United States account for 85% of Nepal’s foreign trade. Therefore, it is necessary to place more emphasis on national diversification.

 According to the commitments made by the country in the World Trade Organization and various agreements, it is necessary to adjust the customs duties in the Department of Customs. The provision of 100 per cent margin on imports through LC has increased the cost of doing business. The problem of mismatches has been seen due to the implementation of the same in the value added tax. Therefore, such discrepancies should be stopped relative to time. The government needs to recognize LC and Customs transaction value. The maximum income tax limit should be raised to Rs. 6 lakhs for individuals and Rs. 8 Lakhs for couples. The threshold for determining income tax on account of transactions and keeping account of value added tax has been increased from 50 Lakhs to 1 Crores and the tax rate should be 0.5 percent. This will bring relief to small entrepreneurs and increase revenue.

 Since 2026, Nepal will be upgraded from Least Developed to Developing Country. Then the least developed countries have to give up the concessions they have been consuming. This is likely to further complicate export trade, especially to the United States and European countries. Therefore, proper homework should be done from now on to reduce the negative impact. Within this, efforts should be made to take advantage of the landlocked countries.

 Further cooperation between the state and the private sector is required for the promotion of agriculture, tourism, water resources, mining, etc., which can be of comparative advantage. Arrangements should be made to process and export herbs, gems, stains and other raw materials at home.

 A special program should be announced immediately to mobilize the capital and skills acquired by the youth abroad to invest in their own country and create more employment opportunities. It is necessary to move the agricultural sector towards modernization, mechanization and scientification and the farmers should be given concessions by maintaining 3 percent interest on agricultural loans.

(This article is based on a statement delivered on the occasion of 71st Anniversary of Nepal Chamber of Commerce.)