No currency devaluation: Finance Minister

Finance Minister Surendra Pandey rejected speculation about the devaluation of Nepali currency despite thinning foreign exchange reserves. "It is a rumour," he scoffed at a press meet organised at the ministry here today.

"Our foreign exchange reserves can accommodate import for seven months and there is no problematic situation," he said adding that the government is preparing export promotion programmes to increase foreign exchange reserves. "The Economic Activities Monitoring and Advisory Committee will draw up concrete programmes to boost export," he added.

FM Pandey assured that the government was ready to control excessive import. "The government decision to increase customs duty on gold is an instance," he said. The government has increased custom duty on gold earlier this week from Rs 130 per 10 gram to Rs 470 per 10 gram duty to stop illegal cross-border trade with India. However, still there is a difference of Rs 10 per 10 gram in Nepal's and India's duty even after revision.

Import of goods and services significantly increased this year compared to the previous year. There was an average monthly import of goods and services equal to Rs 17.43 billion in the fiscal year 2007-08 and which reached Rs 30.81 billion this year. Last year, the average monthly import was Rs 21.97 billion.

The great growth in import was fuelled by excessive import of gold this year. The country saw gold worth Rs 5.6 billion imported per month while the rate was Rs 1.46 billion a year ago. "If we can manage it, we can save Rs 4.14 billion monthly," he explained.

FM Pandey also voiced grave concern over the liquidity crunch. Deposit in banks and financial institutions is not increasing at the ratio of money in the market, he said. Growth of deposit in commercial banks decreased to four per cent this year from 13 per cent last year.

The government has identified irregularities in cooperatives and wants to regularize the sector. "The government and Nepal Rastra Bank (NRB) are exploring how the irregularities can be controlled," he said adding that the department of Cooperatives (DoC) has studied the financial position of 10 big cooperatives in Kathmandu Valley.

According to FM Pandey, low foreign exchange reserves occurred because of increased trade deficit and marginal growth in remittance. "We have two major challenges -- managing the liquidity crunch and maintaining the BoP at the earliest to ease the situation," he said.

The minister also expressed worry over increasing expenditure of the government. "Salary increment of civil servants, special security plan and the cholera out-break in the country's far-western region are major causes of increased expenditure," he said. However, the ministry will meet the revenue target, he added pointing out at the same time that revenue is not export-based that could propel economic activities in the country. Rather, it is an import-fuelled revenue growth that will not help the economy.

"The government is planning to present a supplementary budget in the Legislative Constituent Assembly to cope with the growing general expenditure," he said.

FM Pandey also voiced concern over the price rise and bearish capital market, though he has done nothing to curb inflation and boost the confidence of investors. Inflation here is at 12 per cent in first seven months of the current fiscal year contrary to MoF's projection of seven per cent.