Falling remittance inflows linked to ‘illegal’ gold imports – The Kathmandu Post

The Tribhuvan International Airport customs office on November 29 seized 21kg of gold brought in the form of jewellery by several people arriving from abroad.

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The gold was seized from individuals because they were carrying more than the set threshold—50 grams of gold jewellery per person. Authorities were taken by surprise when they found out the seized amount of gold on a single day was more than what the commercial banks imported per day.

Only commercial banks in Nepal are allowed to import gold, and the limit for per day import has been fixed at 20kg.

“That gold bullion in large quantities is being brought informally and being seized every day at the airport suggests that it is one of the reasons for the fall in remittance inflow,” said Prakash Kumar Shrestha, chief of the economic research department at the Nepal Rastra Bank.

When workers spend their earnings to buy gold abroad, it leads to a reduction of money they send and bring home.

Remittance sent home by Nepali workers abroad has been the mainstay of Nepal’s economic activities.

The inflow of remittance, however, dropped for the third straight month since the beginning of the fiscal year 2021-22 in mid-July despite an increase in the number of outbound migrant workers after major employment destinations reopened their doors to foreign job seekers, according to the Nepal Rastra Bank.

Besides India, the Gulf nations and Malaysia are major destinations for Nepali migrant workers.

According to the latest central bank data, the amount of money sent home by Nepalis abroad shrank by 7.6 percent to Rs239.32 billion in the first quarter. The inflows of remittance had dropped by 18.1 percent to Rs75.96 billion and by 6.3 percent to Rs155.37 billion in the first and second month, respectively, according to the central bank.

The number of Nepali workers taking approval for foreign employment, however, increased sharply to 66,316 in the review period.

The drop in inflows of remittances, the largest source of foreign exchange earnings for the country, along with a surge in imports, have contributed to the depletion of foreign exchange reserves, leaving the government worried about an economic fallout.

Foreign exchange reserves also dropped for three consecutive months in the first quarter of the current fiscal year with a decline of 5.7 percent to Rs1319.32 billion in mid-October.

Shrestha said that indications are that there would be a further drop in foreign exchange reserves by the end of the first four months of the current fiscal year, as per the available data.

Depletion of foreign exchange reserves weakens the government’s ability to buy more from abroad and it may also discourage foreign investors from investing in Nepal as they would be concerned about dividend repatriation.

In the first quarter of the current fiscal year, available foreign exchange reserves are enough to sustain imports for 7.8 months, just above the central bank’s target of maintaining foreign exchange to sustain imports for seven months.

The government started keeping a close eye on gold imports, as it suspects racketeers could be using migrant workers to bring gold in the form of jewellery.

Officials say Nepalis returning from Gulf nations are often persuaded into carrying gold jewellery for a certain amount of money. They say it’s mostly Nepalis who try to fix the returning compatriots as carriers.

“We have information that gold racketeers are using Nepalis, especially migrant workers, as carriers,” Punya Bikram Khadka, director at the Department of Customs, told the Post last month. According to Khadka, such a trend was also exposed when some people were arrested with several gold lockets and gold bangles at a domestic airport.

In September, police arrested two people at Nepalgunj airport with 4kg of gold as they were travelling from Kathmandu to Nepalgunj by a Shree Airlines flight.

According to reports, six gold biscuits weighing around 3.994 kilograms, five gold lockets, one gold necklace, and one gold bangle weighing 27.49 grams were recovered from them.

On November 28, the Department of Customs said in a notice that people returning from abroad could only bring up to 50grams of gold jewellery without paying customs duty. Anyone carrying more than the set threshold—and up to 200 grams—will have to pay customs. Gold jewellery above 200 grams will be confiscated, the department said.

Likewise, the notice also stated that any type of gold up to 100 grams can be brought from abroad by paying customs duty.

“Even though this rule has been in place for the last one and a half years, we started enforcing this policy strictly only recently considering the depleting foreign exchange reserves due to increased imports and decreased remittances,” said Mahesh Bhattarai, chief customs officer at the customs office of Kathmandu airport.

Officials say there has been a decrease in import of gold after the authorities started enforcing the rule strictly.

After the seizure of 21kg of gold on November 29, customs officials at the Tribhuvan International Airport seized 12kg of gold the following day and 16kg on the third.

“The quantity of gold jewellery seized by customs officials has gone down lately,” said Bhattarai. “We have seized excess gold of 1.5kg per day to 21 kg per day in the last two weeks.”

Officials suspect racketeers are importing gold using migrant workers in small quantities to avoid paying tax. After collecting the precious metal, they sell it at higher prices, especially in India, according to officials.

Bankers say that the impact of the government’s action can be felt in demand for gold from banks.

Sunil KC, chief executive officer of NMB Bank, said that gold demand has continued to remain high in the recent weeks due to the wedding season.

“But lately we are experiencing a rising demand for gold from the market. The government’s action might be one of the reasons for surging demand, besides the wedding season,” KC told the Post.

According to KC, banks are finding it hard to fulfil the demand with available gold being sold instantly.

Bullion traders say that they have not been able to provide gold to customers due to the limited quota for gold import.

“There is a demand for at least 50kg of gold per day in the domestic market but import quota is just 20kg a day,” said Ram Prasad Bishwakarma, acting president of the Federation of Nepal Gold Silver Gem and Jewellery Association. “As a result, we have been forced to return customers empty-handed or ask them to generate gold by themselves for making jewellery.”

Bishwakarma, however, said that he was not aware whether the illegally imported gold was being traded by the federation’s members.

Officials and experts say that the government’s move to monitor gold import at the airport could have a demonstrative impact on minimising the trend of bringing gold from abroad, as it will encourage migrant workers to bring money home instead of gold.

“The objective of the government’s action is to discourage migrant workers from bringing gold so that their hard-earned money comes to Nepal,” said Shrestha, the chief of the economic research department at the Nepal Rastra Bank. “The move is expected to help increase remittance inflow with people sending money home instead of bringing gold.”

He, however, admitted that there is also a need to control the inflows of remittance via Hundi, an informal method of transferring money.

“After the ease in travel restrictions, we feel that there has been a rise in the trend of bringing money through Hundi instead of a formal banking channel,” said Shrestha.

Officials and bankers said that the government’s move was necessary at a time when the country’s ability to buy goods and services from abroad has weakened due to depletion of foreign exchange reserves.

“The government action to control informal import of gold was necessary considering the foreign exchange outflow due to illegal imports of gold,” said Ashoke Rana, chief executive officer of the Himalayan Bank. “This action is yet to translate into an increase in remittance. The government should also take appropriate action to discourage Hundi.”