Nepal's central bank has ordered the country's commercial banks not to issue new letters of credit (L/Cs) for the importation of vehicles and other non-essential goods as part of its efforts to preserve dwindling foreign exchange reserves.

The central bank issued its order after other indirect measures had failed to cut imports significantly, despite banks saying that they were already discouraging importers from applying for L/Cs before the official directive.

There are no restrictions on L/C openings for imported essential goods, factors of production or agricultural products while luxury goods include cosmetics, snack foods, gold and silver.

Rocketing imports

Imports jumped by 42.8 per cent to the equivalent of some US$8 billion during the first seven months of Nepal's 2021-22 fiscal year, against an increase of 0.01 per cent last year.

Purchases of many goods, including crude oil and petroleum products, medicines, soybean oil, transport equipment, vehicles and parts, have increased sharply.

Existing L/C restrictions

Last year the central bank issued a directive for importers to keep a 100 per cent margin amount to open an L/C for certain types of imported goods, including alcoholic drinks, tobacco and furniture.

Importers of motorcycles, scooters and diesel-powered private automobiles have to maintain a 50 per cent margin.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.