Central bank removes cash margin in import

The central bank has removed the cash margin provision for imports, which the importers need to maintain against Letters of Credit (LCs), while importing goods.

As the foreign exchange (forex) reserve has been comfortable, the Nepal Rastra Bank (NRB) has removed the cash margin provision for imports, confirms a press note issued by the central bank today.

“All types of cash margin arrangements have been removed,” the circular reads, asking the banks and financial institutions (BFIs) concerned not to consider the cash margin. With the new rule, now businessmen do not have to keep any kind of cash margin for imports, which will encourage them for more imports.

The central bank had imposed cash margin of 50 per cent to 100 per cent on LC – for the import of around 300 goods, including automobiles – since last 1 year to tighten the imports after depleting forex reserve. Last month, the central bank has removed the provision of cash margin on the import of construction materials.

Earlier, traders were required to maintain a cash margin of only 5 per cent to 10 per cent of the value of goods, while importing goods but the central bank and the government tighten the imports raising the cash margin upto 50 per cent to 100 per cent to restrict imports that has sucked the forex reserve.

The private sector and International Monetary Fund (IMF) have been opposed to import restriction, as according to the data only import restriction has not pushed forex reserve up rather the government revenue – customs – dropped drastically. As result, the government lifted the seven-month-old ban on the import of ‘luxury goods’ last month to meet a condition of the IMF ahead of the formation of a new government.

The IMF has delayed the second installment of a $398.5 million loan approved for Nepal due to import restriction. The IMF – in In January 2022 – had approved the extended credit facility for Nepal. Of the total amount, Nepal received $ 110 million as the first installment. But IMF delayed the second installment, which is around $ 55 million.

According to the central bank records, the forex reserves reached Rs 1.292 trillion in the first five months of the current fiscal year. “The amount will be sufficient for Nepal to import goods and services for the next 8.7 months,” the central bank’s monthly macroeconomic report reads, adding that the remittance inflow has touched Rs 480 billion in the first five months of the current fiscal year. “Compared to the amount received in the same period of last fiscal year, this is an increase of 23 per cent. 

In US dollars terms, Nepal received $3.71 billion in five months, which is a 13.1 per cent growth from the dollar value of the amount received in the same period of the last fiscal year. The increase in remittance inflow has improved the forex reserve giving the central bank and the government confidence to ease imports.

After easing the import ban, the central bank should control the credit on imports using monetary tools as the dollar earning – that could help increase forex reserve – is limited to remittance due to poor exports and Covid-19-hit tourism industry.