The textbook theory that weak currency discourages imports seems to have proven true in Nepal’s case, as import growth rate has tapered in the first six months of the current fiscal year.
Raw data provided by the Department of Customs (DoC) show that the country’s imports rose by a marginal three per cent to around Rs 350 billion in the six-month period to mid-January. In the same period last fiscal, imports had surged by approximately 25 per cent to around Rs 340 billion, according to the DoC.
Although Nepal Rastra Bank (NRB) and the Trade and Export Promotion Centre (TEPC) are yet to publish their trade figures for the six-month period of this fiscal, their import figures for the first six months of last fiscal year do not match with that provided by the DoC. NRB has said imports stood at Rs 271.35 billion in the first six months of last fiscal, whereas, for the same period, the TEPC has put the figure at Rs 289.89 billion.
It is not uncommon for trade figures of the DoC, NRB and the TEPC to vary, as each use their own methodology to derive import-export figures — although the irony is that all collect raw data from the DoC.
Despite these discrepancies, what is true is that import growth has fallen tremendously this fiscal due to weakening of Nepali rupee vis-a-vis US dollar, DoC deputy director general Toyam Raya said.
Nepali rupee’s value has deteriorated by 16 per cent in the last one year, reaching an all-time low of Rs 109.03 per US dollar on September 4, 2013.
A weak rupee generally discourages imports, as traders have to spend more local currency to purchase every dollar before going abroad. This automatically makes foreign goods expensive for local customers, lowering their appetite in the domestic market.
In Nepal’s context, the impact of a weak or strong currency is said to be seen only after a period of two to three months, as the process of getting a Letter of Credit from banks to bring in goods from abroad consumes this much time.
Although a slowdown in imports should be good news for the nation as it prevents further widening of trade deficit, it may not be as welcoming for the government because of its overdependence on imports to generate revenue needed to run the country.
An example of this is DoC’s failure to meet the target set for first six months, which has put the government on its toes.
Around two dozen customs offices collected customs duty of Rs 29.15 billion from imports between mid-July and mid-January, as against the target of Rs 31.07 billion set by the government.
Fall in import growth also affected value added tax (VAT) collection, with various customs offices reporting VAT collection of Rs 34.37 billion in the six-month period, against the target of Rs 35.49 billion. Since VAT raised from customs offices contributes to around 65 per cent of the total VAT collection and customs duty also makes significant contribution to the state’s total income, lower collection of these taxes affects the entire revenue mobilisation plan of the government.
source: the himalayan times,29 jan 2014
LINK
Raw data provided by the Department of Customs (DoC) show that the country’s imports rose by a marginal three per cent to around Rs 350 billion in the six-month period to mid-January. In the same period last fiscal, imports had surged by approximately 25 per cent to around Rs 340 billion, according to the DoC.
Although Nepal Rastra Bank (NRB) and the Trade and Export Promotion Centre (TEPC) are yet to publish their trade figures for the six-month period of this fiscal, their import figures for the first six months of last fiscal year do not match with that provided by the DoC. NRB has said imports stood at Rs 271.35 billion in the first six months of last fiscal, whereas, for the same period, the TEPC has put the figure at Rs 289.89 billion.
It is not uncommon for trade figures of the DoC, NRB and the TEPC to vary, as each use their own methodology to derive import-export figures — although the irony is that all collect raw data from the DoC.
Despite these discrepancies, what is true is that import growth has fallen tremendously this fiscal due to weakening of Nepali rupee vis-a-vis US dollar, DoC deputy director general Toyam Raya said.
Nepali rupee’s value has deteriorated by 16 per cent in the last one year, reaching an all-time low of Rs 109.03 per US dollar on September 4, 2013.
A weak rupee generally discourages imports, as traders have to spend more local currency to purchase every dollar before going abroad. This automatically makes foreign goods expensive for local customers, lowering their appetite in the domestic market.
In Nepal’s context, the impact of a weak or strong currency is said to be seen only after a period of two to three months, as the process of getting a Letter of Credit from banks to bring in goods from abroad consumes this much time.
Although a slowdown in imports should be good news for the nation as it prevents further widening of trade deficit, it may not be as welcoming for the government because of its overdependence on imports to generate revenue needed to run the country.
An example of this is DoC’s failure to meet the target set for first six months, which has put the government on its toes.
Around two dozen customs offices collected customs duty of Rs 29.15 billion from imports between mid-July and mid-January, as against the target of Rs 31.07 billion set by the government.
Fall in import growth also affected value added tax (VAT) collection, with various customs offices reporting VAT collection of Rs 34.37 billion in the six-month period, against the target of Rs 35.49 billion. Since VAT raised from customs offices contributes to around 65 per cent of the total VAT collection and customs duty also makes significant contribution to the state’s total income, lower collection of these taxes affects the entire revenue mobilisation plan of the government.
source: the himalayan times,29 jan 2014
LINK
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