The government plans to lift the import ban on some items ahead of the country’s biggest festival and busiest shopping season, officials said.
“Discussions are ongoing to maintain the embargo on listed products,” an unnamed official from the Ministry of Industry, Trade and Supply said. “But in view of the upcoming Dashain, Tihar and Chhath festivals, the ministry may lift the ban on certain products like alcohol and mobile phones.”
An embargo on 10 types of products considered “luxury goods” has been in place since April 26 to conserve foreign currency. On July 17, the Nepalese government extended the embargo until August 30.
The move has sparked resentment from merchants who see it as a drag on business during a key holiday shopping period that begins in September.
A council of ministers can decide on the recommendation made by the ministry. The lifting of the ban will provide a small window to import goods for festivals. Despite the government’s delayed response, this will help boost market confidence, traders say.
Analysts believe the import restriction was prompted by fears of a Sri Lanka-style financial catastrophe after the island nation ran out of foreign currency to import essential goods.
When the ban was first imposed in April, the government banned the import of mobile devices worth more than $600 and motorcycles with a capacity greater than 250 cc.
Tougher restrictions followed and mobile sets costing more than $300 and motorcycles with a capacity of more than 150 cc were embargoed.
Other items whose importation has been banned are alcoholic beverages and tobacco products; diamonds; televisions over 32 inches; jeeps, cars and vans except ambulances; toys; cards and snacks.
The ban failed to control the flow of foreign goods into the country, and imports actually jumped 24.72% to a record 1.92 trillion rupees in the last financial year, according to the Customs Department.
“This type of ban should only be of short duration and should be lifted after a short period. A long-term ban will affect revenue generation, impact consumer choices and force them to pay high prices for goods,” said economist Govinda Nepal.
Economists say such bans also ruin the business climate. “Obviously, such measures are taken in extreme situations. A long-term ban has an impact on the economic cycle,” Nepal said.
Economists and the private sector accuse the government of not having done its homework before imposing the ban. “Authorities have extended it without analyzing how it may hamper the smooth functioning of a free market economy,” Nepal said.
The government increased taxes on vehicles not on the embargo list, which drove up prices, ultimately forcing consumers to pay more.
The impact of the ban was minimal, as smuggling through the porous border points flourished beyond control. “Government is losing revenue as imports continue to rise,” Nepal said.
With the exception of motor vehicles, all types of prohibited goods arrive through illegal channels. There is no shortage of consumer goods that the country has completely banned, industry insiders say.
Last week, Nepalese police arrested five people for producing and distributing counterfeit alcohol. Police seized four cartons of world brand liquors like Double Black Label, Black Label and Jack Daniels.
An initial investigation showed that the alcohol was supplied to nightclubs, lounges, discos, liquor stores and dance bars, where demand rose sharply following the ban on branded liquor.
“Traders in Nepal are at risk of losing confidence because illegal trade is thriving on the ban,” said Dinesh Shrestha, vice president of the Federation of Nepalese Chambers of Commerce and Industry.
“The government has no data regarding the demand and consumption of goods, and no studies have been carried out. The government has made decisions based on its own assumptions and has not consulted the private sector” , Shrestha said.
Despite the ban, external indicators did not improve. According to the Nepal Rastra Bank, imports increased by 24.7% to Rs 1.92 trillion in the last fiscal year, compared to a 28.7% increase in the previous fiscal year.
The current account recorded a deficit of $5.17 billion in the year under review, compared to a deficit of $2.84 billion the previous year.
The balance of payments remained in deficit at $2.14 billion during the year under review, compared to a deficit of $3.1 million the previous year. Gross foreign exchange reserves decreased by 18.9% to $9.54 billion in mid-July 2022 from $11.75 billion in mid-July 2021.
Based on 2021-22 imports, foreign exchange reserves with the banking sector are sufficient to cover projected imports of goods for 7.8 months and imports of goods and services for 6.9 months, according to the central bank .
“The government should reconsider its decision and let the market operate independently,” Nepal said.
Demand for TVs increases during festivals and this year, due to the FIFA World Cup, traders expect sales to grow even faster. Worried TV dealers have urged the government to lift the ban as there could be a shortage of flat-screen TVs on the market.
The ban on alcohol imports has only encouraged the production of counterfeit products, traders say. The hospitality industry slammed the government’s decision saying it plans to bring in more tourists to boost foreign currency reserves, but the alcohol ban will make this more difficult as holidaymakers won’t want to come.
Car dealers also say the extension of the ban will affect their festive sales.
“The government says the ban has reduced imports, but it has no idea of the impact on other sectors,” Shrestha said. “The government is unaware of the increase in contraband in the market and how it is losing revenue,” he said.
“With the government not monitoring the market properly, an extension of the ban will hurt the economy while benefiting a handful of traders,” Shrestha said. “It will erode market and private sector confidence.”