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Nepal limits imports as foreign currency reserves slide

Nepal has restricted imports of non-essential goods – including cars, cosmetics and gold – after its foreign currency reserves dropped.

It comes as a fall in tourism spending and money sent home by Nepalis working abroad helped drive up government debt.

Meanwhile, the governor of the country’s central bank was removed from his role last week.

Nepal’s finance minister said he was “surprised” the issue was being compared with the crisis in Sri Lanka.

According to the country’s central bank, Nepal Rastra Bank, foreign currency reserves fell by more than 16% to 1.17tn Nepali rupees ($9.59bn; £7.36bn) in the seven months to the middle of February.

Over the same period, the amount of money sent to Nepal by people working abroad fell by almost 5%.

Narayan Prasad Pokharel, deputy spokesperson at the central bank, told the Reuters news agency that the institution believed the country’s foreign currency reserves were “under pressure”.

“Something must be done to restrict the import of non-essential goods, without affecting the supply of essential goods,” Mr Pokharel said.

He added that importers were allowed to bring in 50 “luxurious goods” if they paid for them in full.

“This is not banning the imports but discouraging them,” Mr Pokharel said.

Last week, Nepal’s government removed central bank governor Maha Prasad Adhikari from his role, without giving a reason for the decision.

Government debt in Nepal has risen to more than 43% of its gross domestic product, as officials increased spending to help cushion the economic impact of pandemic, Nepal’s finance ministry said on Monday.

The ministry also said indicators of the country’s economic health were “normal”.

“However, due to some pressures in the external sector, some steps have already been taken to manage imports and increase foreign exchange reserve,” it said in a statement.

Earlier in the day, finance minister Janardan Sharma said Nepal’s debt was lower than other countries in the region and elsewhere.

Mr Sharma told reporters: “I am surprised why people are comparing with Sri Lanka”. The island nation is facing its most serious economic crisis since independence from the UK in 1948.

Alex Holmes, an emerging markets economist at research firm Capital Economics also told the BBC that the situation in Nepal appears “much better than in Sri Lanka”.

Nepal’s foreign currency reserves are double what is considered “a comfortable minimum” and government debt “is not particularly high”, Mr Holmes said.

“Of course, things will eventually regress if the current account deficit does not narrow,” he added. “But crisis does not appear imminent”.

Last week, Sri Lanka named a new central bank chief and almost doubled its key interest rate to help tackle soaring prices and shortages of essential goods.

In recent weeks, demonstrators have taken to the streets of the capital Colombo as homes and businesses were hit with long power cuts.

Sri Lankans are faced with shortages and rising inflation after the country steeply devalued its currency last month ahead of talks with the International Monetary Fund over a bailout.

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