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Nepal Table of Contents

Nepal

BALANCE OF PAYMENTS, NEPAL

The balance of payments in the 1980s improved, despite a continued trade deficit. This improvement was achieved through foreign loans and assistance. Nonetheless, foreign debt was increasing. Foreign debt and the balance of payments were intrinsically linked, and an improvement in one area was at the expense of the other. Between 1986 and 1990, the debt service ratio increased from an average of under 7 percent to about 12 percent. In 1989 the debt service ratio skyrocketed to 17 percent. This increase was the result of the acquisition of two commercial aircraft and a decline in exports caused by trade and transit difficulties. According to World Bank figures, by mid-1989 official foreign debt outstanding and disbursed was approximately US$1.3 billion. There also was a deficit in the balance of payments of convertible Indian currency.

The Structural Adjustment Program addressed the trade deficit and sought to increase the speed of economic development. Although exports increased in FY 1988 by 34 percent over the previous year, Nepal still imported much more than it exported. In FY 1988, exports were US$187 million (up from US$139 million the previous year), but imports were US$630 million, up from US$507 the previous year. Nonetheless, more efficient use of foreign aid, increased earnings from exports, tourism, and other services improved the balance of payments situation and increased the international reserves through FY 1989. Foreign exchange reserves also had increased, mostly because of loans from the World Bank and the International Monetary Fund (IMF--see Glossary) for the Structural Adjustment Program, as well as loans from the Asian Development Bank. Both Kuwait and Saudi Arabia had made loans that alleviated the balance of trade deficit. The trade and transit problems with India that began in March 1989, however, erased those gains and resulted in tremendous financial hardships.

Data as of September 1991