After lifting seven months-long import restrictions on automobiles, alcohol, and high-end mobiles in mid-December last year, Nepal Rastra Bank (NRB) appears to be moving in the direction of further easing the measures taken to discourage imports. The central bank is now said to be considering removing the provision that made the importers of certain types of goods deposit cash in the banks before opening the letters of credit (LCs) to import such goods. The provision requiring cash margin was made in order to discourage imports which had widened the balance of payment deficit and depleted foreign exchange reserves since the early days of fiscal 2021-22.

Though these restrictive measures contributed to reducing imports and improving the country's external sector to a certain extent, they also resulted in a huge decline in government revenue which is heavily reliant on imports.

The slowdown in revenue collection forced the government to lift import restrictions on the imports of vehicles, alcohol and expensive mobile phones in mid-December, 2022. Now, the central bank is also considering abolishing the provision of cash margin which is another import control measure. “Internal discussions were held regarding removing the provision of cash margin and we have reached the conclusion that the provision should now be abolished,” a senior official of NRB said under the condition of anonymity. “However, no decision has been taken on the matter and it is also not immediately clear whether the provision will be gradually abolished and fully done at once.” The officials said that it has also not been certain whether the provision will be removed immediately or when it is done during the second quarter review of the monetary policy. Importers have been demanding that the import control measures should be relaxed. Even after the ban on the import of automobiles was lifted, the importers of automobile dealers have not cleared their four-wheelers parked at the different customs yards. According to the Department of Customs, over 2800 four-wheelers including cars, SUVs, buses and trucks have remained stuck at customs yards. “Automobile dealers have been reluctant to clear these imported vehicles stating that they are still in agitation demanding the removal of the provision that requires importers to deposit cash margin before they can order goods,” said an official at the Department of Customs. In December 2021, the central bank first made it mandatory for the importers of 10 types of goods to maintain a 100 percent cash margin while opening LCs for imports. The importers were required to maintain a 100 percent margin at the concerned banks to open a letter of credit for the import items like alcoholic beverages, tobacco, silver, furniture, sugar, and foods containing sweeteners, glucose, mineral water, energy drinks, cosmetics, shampoos, hair dyes, caps, shoes, umbrellas, and building supplies like bricks, marble, tiles, and ceramics, among others. And, on February 9, 2022, the NRB further increased the number of import items requiring a 100 percent cash margin to 43 while it fixed the cash margin needed for the import of four types of goods at 50 percent. But the NRB in early December 2022 rolled back its decision to keep a 100 percent margin provision on the import of construction material, seats, and expansible polystyrene goods. Amid import control measures, the customs revenue collection stood at Rs 157 billion in revenue against the target of Rs 257 billion until mid-December, according to the Department of Customs. While the less than targeted revenue collection forced the government to rethink the import control measures, international agencies such as International Monetary Fund has also been asking the government to halt the policy stating that these measures brought distortion in the market. The central bank is also of the view that there has been some improvement in the country's external sector as the balance of payment (BoP) has turned surplus, and foreign exchange reserves have increased as well as remittance inflow. The BoP has remained positive by Rs 20 billion during the first four months of the current fiscal year while foreign exchange reserves also increased by 2.5 percent to Rs 1246.27 till mid-November, according to the central bank. “We cannot continue the import restrictions forever and we have to stop at some point and there is a consensus at the central bank that it is time to revisit the import control measures,” the central bank official said. But there are fears that the country's external sector could again come under stress if the NRB removes the cash margin provision. Economists say imports will be encouraged once the central bank removes the cash margin provision, which will further hit the country's forex reserves.