Nepal’s external debt down due to falling dollar

Nepal’s external debt stock decreased slightly in the second quarter of the current FY 2021-22 in local currency from the first quarter despite an increase in the flow of foreign loans in the quarter.

This is due to foreign exchange gains made by the national currency due to the depreciation of the US dollar, according to the Office of Public Debt Management. According to the new quarterly report office released on Sunday, Nepal’s external debt decreased by 0.03 percent or Rs 248.39 million from the first quarter.

The country’s total outstanding foreign loans in the second quarter stood at 948.98 billion rupees.

Although higher inflows of external debt relative to the amount of repayment should have led to an increase in debt, this did not happen, which officials from the Office of Public Debt Management believe is due to the foreign exchange gains resulting from the depreciation of the US dollar and other foreign currencies. .

Nepal received external debt of 23.17 billion rupees while principal repayment amounted to 6.95 billion rupees in the second quarter of this fiscal year. “The fluctuation in exchange rates resulted in a foreign exchange gain of Rs 16.47 billion for the current quarter resulting in a decrease in outstanding debt,” said the quarterly report States.

“The foreign exchange gain for Nepal means the country paid less to its external creditors in local currency in the second quarter,” said Mukti Prasad Pandey, head of the Public Debt Management Office. During the second quarter, Nepal repaid 8.74 billion rupees including payment of principal and interest to foreign creditors, according to the quarterly report.

According to report, there was an exchange rate gain of 2.2 rupees as the exchange rate on October 18, 2021 was 120.72 rupees per US dollar while the exchange rate on January 14, 2022 was 118.52 rupees per US dollar. Corresponding effects on the exchange rate of other currencies on which loans have been extended to Nepal have also been observed, according to the report.

“The main reason for the decline in the stock of external debt is the gain of the Nepalese currency against the special drawing rights (SDRs),” said Pandey, head of the public debt office.

the SDR is an international reserve asset created by the International Monetary Fund (IMF) to supplement the official reserves of its member countries. The SDR is not a currency but it is a potential claim on the freely usable currencies of IMF members. A basket of currencies defines the SDR: the US dollar, the euro, the Chinese yuan, the Japanese yen and the British pound.

Pandey said multilateral donor agencies such as the World Bank and the Asian Development Bank calculate their loans to countries usually in SDRs and these two are the two biggest donors to Nepal. Since the last fiscal year 2020-21, Nepal 80.36 percent debt liabilities are in SDRs, according to the public debt office.

“Nepal generally faces exchange rate losses due to the depreciation of the Nepalese currency against currencies like the US dollar which dominates the SDR,” Pandey said. But in the second quarter, the national currency made gains.

In the last fiscal year 2020-21, Nepal had lost only more than 9 billion rupees due to the depreciation of the Nepalese currency against foreign currencies in which the country should repay loans, according to the public debt office.

In the previous fiscal year 2019-2020, the country lost 72.16 billion rupees in national currency due to the depreciation of the Nepalese currency.

“Usually, Nepal faces foreign exchange losses on its external debt. But in the second quarter of this fiscal year, we made gains,” said Hira Neupane, information officer at the public debt office. “This means that the government spent less domestic currency in the second quarter to repay loans.”

According to him, the central bank repays or manages the loans on behalf of the government and the government repays the money to the central bank based on the exchange rate on the day the loan is repaid.

Nepal has received loans from multilateral donor agencies such as the World Bank and the Asian Development Bank and bilateral donors at low interest rates. Thus, the amount of interest paid by Nepal to international creditors has remained lower than that of domestic creditors.

During the second quarter, the government paid 11.40 billion rupees to domestic creditors, almost all of which was interest as well as part of the commission paid to the Nepal Rastra Bank for its debt management task. The country repaid 8.74 billion rupees to external creditors and of the amount, only 1.15 billion rupees was interest.

“Although we paid less to external creditors compared to domestic creditors this quarter, we may have to pay more to external creditors if the Nepalese currency depreciates, especially against the US dollar,” Neupane said. “The freefall of the Nepalese currency depends on the economic performance of the country and that of the Indian currency to which the Nepalese currency is pegged.”

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