BoP surplus likely hit record high

BoP surplus likely hit record high

The Balance of Payments (BoP) surplus likely hit record high at the end of the last fiscal year 2014-15 fuelled by increased remittance inflow and foreign assistance, the Nepal Rastra Bank ( NRB ) has said.

BoP is the balance of money going out and coming in the country and a surplus enables the country to sustain imports. As of the first 11 months of the last fiscal year, the surplus reached as high as Rs127.2 billion, according the budget for the current fiscal year 2015-16.

NRB Spokesperson Min Bahadur Shrestha said the central bank expects the BoP surplus to hit record high at the end of the last fiscal year due to surging remittance and import slowdown in the later months.

At the end of FY 2011-12, the surplus had hit reached record high of Rs127.7 billion. Shrestha said it had reached as high as Rs131 billion at one point of time. “Despite a rise in imports, the growth rate has slowed massively in the aftermath of the April 25 earthquake contributing to the rise in the BoP surplus,” he said.

Despite slow remittance growth in the initial months, it surged in the later months and peaked after the earthquake with people sending money home for reconstruction of damaged property.

In the first 10 months of the last fiscal, remittance increased by 10 percent to Rs489 billion. The figure is expected to have risen by around 12 percent at the end of the 11th month, Shrestha said. The central bank is yet to publish its monthly macro-economic report for the 11 months of the last fiscal year.

Economists say a BoP surplus is good for the economy, but doubt about its sustainability. Economist Keshav Acharya said a BoP surplus helps attract foreign investors because they see the prospect for profit repatriation. Availa-bility of enough foreign exchange enables foreign investors to easily repatriate profits and dividends.

He, however, said the high surplus seen at the moment was just a short-term phenomenon due to increased remittance after the earthquake. “The imports will definitely surge this fiscal year as many goods and services will have to be imported for reconstruction purposes,” he said. “This will increase the trade deficit heavily, putting pressure on the BoP.”

As of first the first 11 months of the last fiscal year, foreign exchange reserves stood at Rs809.48 billion, sufficient for imports of goods for 13.1 months and imports of goods and services for 11.3 months, according to the budget.

“The foreign exchange reserves have had never been adequate to goods sustain imports for as high as 13 months in the last five years,” said Shrestha, who also heads NRB ’s research department.

“But I am not sure whether it is for the first time the country had foreign exchange reserves that could sustain the goods and services import for so many months.”

Source: eKantipur