Annual Report on Exchange Arrangements and Exchange Restrictions, 2007
Chapter

NEPAL

Author(s):
International Monetary Fund. Monetary and Capital Markets Department
Published Date:
October 2007
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(Position as of March 31, 2007)

Status under IMF Articles of Agreement
Article VIIIDate of acceptance: May 30, 1994.
Exchange Measures
Restrictions and/or multiple currency practicesNo restrictions as reported in the latest staff report as of December 31, 2006.
International security restrictions
In accordance with IMF Executive Board Decision No. 144-(52/51)n.a.
Other security restrictionsn.a.
References to legal instruments and hyperlinksn.a.
Exchange Arrangement
CurrencyThe currency of Nepal is the Nepalese rupee.
Exchange rate structureUnitary.
Classification
Conventional pegged arrangementThe Nepalese rupee has been pegged to the Indian rupee at the rate of Nrs 1.6 per Re 1 since February 1993. The reference rate of the dollar quoted by the Nepal Rastra Bank (NRB) is based on the average of the quoted buying and selling rates of commercial banks. Exchange rates of other major currencies are quoted on the basis of overseas markets. Buying and selling rates are quoted daily for certain other currencies, with quotes based on the buying and selling rates for the dollar in markets abroad.
Exchange taxNo.
Exchange subsidyNo.
Forward exchange marketBanks provide forward exchange cover for trade transactions.
References to legal instruments and hyperlinksn.a.
Arrangements for Payments and Receipts
Prescription of currency requirementsConvertibility between the Indian rupee and the Nepalese rupee is unrestricted in Nepal. All current transactions with member countries of the ACU other than India must be effected through the ACU. Payments for selected imports from India may be settled in dollars. Effective May 29, 2006, four items have been added to the list, increasing the number of items eligible for import from India through payments in convertible foreign exchange to 91 from 87. Commercial banks are permitted to make payments in dollars for imports from India by international organizations for their own use. Other imports and proceeds from exports to India must be settled in Indian rupees. Proceeds from exports to other countries must be received in convertible currencies. Commercial banks may transact in renminbi with Chinese tourists.
Controls on the use of domestic currencyn.a.
Use of foreign exchange among residentsCommercial banks may engage in interbank transactions in Indian rupees. Resident individuals may purchase Indian rupees and sell them to the NRB.
Payments arrangements
Regional arrangementsNepal is a member of the ACU.
Clearing agreementsYes.
Administration of controlPayments in convertible currencies may be made without permission, subject to the procedures prescribed by the NRB. All exchange transactions must be settled through ADs. Nonbank ADs are licensed to accept foreign currencies only for their services to foreign nationals.
Payments arrearsNo.
Controls on trade in gold (coins and/or bullion)
On external tradePersons who have stayed abroad for more than one month and have an official source of foreign earnings may import up to 10 kilograms of gold. Effective March 13, 2006, imports of gold and silver are allowed under OGLs.
Controls on exports and imports of banknotes
On exports
Foreign currencyForeign banknotes, other than Indian banknotes, may not be taken out by residents without permission. Nonresidents may take out any unconverted foreign banknotes they brought in.
On imports
Domestic currencyYes.
Foreign currencyResidents and nonresidents may bring in foreign banknotes freely but must declare amounts exceeding the equivalent of $2,000. No limit applies to Indian rupees.
References to legal instruments and hyperlinksn.a.
Resident Accounts
Foreign exchange accounts permittedYes.
Held domesticallyExporters may deposit up to 100% of export earnings in a foreign exchange account to cover trade-related expenses. Nepalese citizens earning foreign exchange from working abroad (except in Bhutan and India) for more than three months may also open these accounts. Commercial banks may accept deposits denominated in most freely usable currencies and are free to determine the rate of interest paid on deposits. Current accounts may be opened with a minimum equivalent to $500, and time deposits with a minimum equivalent to $3,000. Banks are free to determine the minimum balance on time deposits. Foreign exchange earners (exporters and the tourism sector) are allowed to make payments from their foreign currency account directly to the foreign party for promotional activities such as booth reservations, registration fees, and service charges. Remittance agencies licensed by the NRB, employment agencies, and, effective August 8, 2006, money changers are allowed to open foreign exchange accounts.
Held abroadYes.
Approval requiredPrior approval is required for commercial banks to open these accounts. Commercial banks may open foreign exchange accounts abroad with nonbank financial institutions for facilitating e-commerce payments.
Accounts in domestic currency held abroadNo.
Accounts in domestic currency convertible into foreign currencyNo.
References to legal instruments and hyperlinksn.a.
Nonresident Accounts
Foreign exchange accounts permittedAccounts may be maintained in all specified convertible currencies, and balances in these accounts may be transferred abroad freely. Diplomats and foreign nationals, except Indian nationals, are free to open foreign currency accounts with Nepalese banks.
Domestic currency accountsNo.
Blocked accountsNo.
References to legal instruments and hyperlinksn.a.
Imports and Import Payments
Foreign exchange budgetNo.
Financing requirements for importsNo.
Documentation requirements for release of foreign exchange for importsEffective May 29, 2006, four items have been added to the list, increasing the number of items eligible for import from India through payments in convertible foreign exchange to 91 from 87.
Letters of creditBanks are required to obtain information regarding the business credibility of suppliers before opening LCs in excess of the equivalent of $50,000.



Effective July 25, 2006, the time limit for the deferred payment of LCs has been abolished. Previously, deferred-payment LCs of up to one year were allowed for all imports.
OtherImporters are allowed to make payments up to the equivalent of $30,000 by draft or wire transfer.
Import licenses and other nontariff measuresMost imports are covered by OGLs.
Positive listYes.
Negative listImports of arms, ammunition, wireless transmitters, precious metals, and jewelry require special permission from the government. Imports of live birds along with their nonprocessed meat products, eggs, and other bird-related nonprocessed items are prohibited from all Asian countries except India, Bangladesh, Sri Lanka, and Bhutan.
Open general licensesYes.
Other nontariff measuresQuantitative restrictions are in effect for the importation of poppy seeds.
Import taxes and/or tariffsEffective July 25, 2006, there are nine tariff rates: 5%, 10%, 15%, 20%, 25%, 30%, 40%, 55%, and 80%. Previously, there were seven tariff rates (5%, 10%, 15%, 25%, and 40%, and two special rates of 80% and 130%). Most goods are subject to either the 15% or the 25% rate. Nepalese citizens returning from abroad who have spent at least 15 nights out of the country are permitted to bring in goods worth the equivalent of Nrs 1,000 free of customs duty and sales tax. Citizens with official sources of foreign exchange earnings and who have stayed abroad for one month or more are allowed additional imports without official documentation.
State import monopolyNo.
References to legal instruments and hyperlinksn.a.
Exports and Export Proceeds
Repatriation requirementsProceeds from exports must be repatriated within 180 days of receipt. Exporters are allowed to accept deferred payments of export proceeds if they do not exceed the equivalent of $1,000 or 2% (previously, $500 or 1%), whichever is higher. Approval of the NRB is required for amounts above the specified limit.
Surrender requirementsExporters may retain the export earnings on their foreign currency accounts with local banks.
Financing requirementsCommercial banks may grant preexport credits of up to 70% of the f.o.b. value of products to all individuals and institutions holding irrevocable LCs opened or endorsed by foreign banks and acceptable to Nepalese banks. Such credit may be provided for a maximum of three months; this period may be extended without penalty in special circumstances beyond the control of the exporter.
Documentation requirements
Letters of creditExports to countries other than India are allowed only against irrevocable LCs or against advance payments by foreign banks.
GuaranteesExport consignments not exceeding $200,000 or its equivalent may be undertaken on the basis of a bank guarantee or securities acceptable to the banks.
DomiciliationReexportation to India of non-Nepalese goods and reexportation to any destination of goods imported from India are prohibited.
Preshipment inspectionPreshipment inspection is not compulsory.
Export licensesExports of items having archaeological or religious value, old coins, narcotics, and explosive materials are prohibited.
With quotasEffective July 25, 2006, the quota system for the export of selected ready-made garments to the United States has been abolished.
Export taxes
Other export taxesExport taxes are levied on 23 specific items, and a 5% service charge—based on the f.o.b. value of the item in question—is levied on all other exports.
References to legal instruments and hyperlinksn.a.
Payments for Invisible Transactions and Current Transfers
Controls on these transfersEffective July 25, 2006, payments and transfers exceeding the equivalent of $2,500 (previously, $1,500) require NRB permission.
Trade-related paymentsCommercial banks are permitted to make payments in dollars for imports from India by international organizations for their own use.
Investment-related payments
Prior approvalPrior approval is required in the case of private sector loan amortization; approval is not required for foreign investors operating in Nepal to repatriate profits earned from their investments.
Quantitative limitsn.a.
Payments for travel
Indicative limits/bona fide testThe indicative limit for Nepalese passport facilities of $2,000 or its equivalent a year has been eliminated. Now travelers can obtain these facilities for each visit. Bona fide payments in excess of the limit are permitted. Effective July 25, 2006, the limit on payments under passport facilities for travel to the South Asian Association for Regional Cooperation (SAARC) countries and Tibet, except India by road, has been increased to $1,000 from $300 each visit.
Personal paymentsCommercial banks are permitted to make payments directly to an educational institution on the basis of a recommendation letter issued by the Ministry of Education.
Prior approvalPrior approval of the government is required for transfers related to medical expenses and costs related to study abroad.
Quantitative limitsn.a.
Foreign workers’ wages
Prior approvalYes.
Credit card use abroadThe use of credit cards abroad is allowed under specific guidelines. Commercial banks may issue debit cards for use abroad.
Quantitative limitsYes.
Indicative limits/bona fide testYes.
Other paymentsForeign exchange earners (exporters and the tourism sector) are allowed to make payments from their foreign currency account directly to a foreign party for promotional activities such as booth reservations, registration fees, and service charges. Commercial banks are permitted to make payments for business credibility information for their own purposes.
Prior approvalYes.
References to legal instruments and hyperlinksn.a.
Proceeds from Invisible Transactions and Current Transfers
Repatriation requirementsYes.
Surrender requirementsYes.
Surrender to the central bankn.a.
Surrender to authorized dealersn.a.
Restrictions on use of fundsYes.
References to legal instruments and hyperlinksn.a.
Capital Transactions
Controls on capital transactionsYes.
Repatriation requirementsn.a.
Surrender requirementsn.a.
Controls on capital and money market instruments
On capital market securities
Shares or other securities of a participating nature
Purchase locally by nonresidentsNonresidents may invest in equity shares of up to 25% of the capital of Nepalese companies.
Sale or issue locally by nonresidentsYes.
Purchase abroad by residentsYes.
Sale or issue abroad by residentsYes.
On collective investment securitiesn.a.
Controls on derivatives and other instrumentsCommercial banks are permitted to conduct interest rate swap operations. Effective March 20, 2007, banks and some financial institutions may enter into transactions in derivatives and other instruments, such as forward operations, swaps, options, and futures. They may also invest their convertible foreign exchange in various financial instruments with any maturity, However, these transactions must be approved by the board of the respective banks and financial institutions.
Controls on credit operationsSpecified borrowers may borrow from abroad in accordance with guidelines.
Controls on direct investment
Outward direct investmentNepalese citizens, whether or not they reside in Nepal, are not allowed to make any type of investment in foreign countries, except as specifically permitted by government notice. Exemptions include the purchase and sale of insurance policies abroad and investments abroad by any banking or financial institution incorporated in Nepal.
Inward direct investmentInvestments require prior approval in the form of a guarantee from the Department of Industry. Foreign investment is not permitted in cottage, small-scale, or defense-related industries. Foreign investors may hold 100% equity in large and medium-scale industries. Foreign securities firms are permitted to form joint ventures with local state exchange members, but their ownership is limited to 25% of the capital of Nepalese companies.
Controls on liquidation of direct investmentControls are in effect based on the provisions of the Company Act.
Controls on real estate transactionsControls apply to all these transactions.
Controls on personal capital transactions
LoansControls apply to all these transactions.
Gifts, endowments, inheritances, and legaciesControls apply to all these transactions.
Settlements of debts abroad by immigrantsn.a.
References to legal instruments and hyperlinksn.a.
Provisions Specific to the Financial Sector
Provisions specific to commercial banks and other credit institutions
Maintenance of accounts abroadApproval of the NRB is required. Commercial banks may enter into interest rate swap arrangements with foreign banks and other financial entities without NRB approval.
Lending locally in foreign exchangeExporters, tourism-related businesses, and specific industries are entitled to such credits. Commercial banks may conduct interbank lending and borrowing in Indian currency.
Purchase of locally issued securities denominated in foreign exchangeNo such transactions have occurred.
Differential treatment of deposit accounts in foreign exchangeDifferential treatment is based on the type of currency.
Reserve requirementsYes.
Liquid asset requirementsYes.
Interest rate controlsYes.
Credit controlsYes.
Investment regulations
In banks by nonresidentsYes.
Provisions specific to institutional investors
Insurance companiesn.r.
Pension fundsn.a.
Investment firms and collective investment fundsn.a.
References to legal instruments and hyperlinksn.a.
Changes during 2006
Arrangements for payments and receiptsMarch 13. Imports of gold and silver were allowed under OGLs.



May 29. The number of items eligible for import from India through payments in convertible foreign exchange was increased to 91 from 87.
Resident accountsAugust 8. Money changers were allowed to open foreign exchange accounts.
Imports and import paymentsMay 29. The number of items eligible for import from India through payments in convertible foreign exchange was increased to 91 from 87.



July 25. The time limit for the deferred payment of LCs was abolished.



July 25. The number of import tariff rates was increased to nine from seven.
Exports and export proceedsJuly 25. The quota system for the export of selected ready-made garments to the United States was abolished.
Payments for invisible transactions and current transfersJuly 25. The limit on payments and transfers that do not require NRB permission was increased to the equivalent of $2,500 from $1,500.



July 25. The limit on payments under passport facilities for travel to the SAARC countries and Tibet, except to India by road, was increased to $1,000 from $300 a visit.
Changes during 2007
Capital transactions
Controls on derivatives and other instrumentsMarch 20. Banks and other financial institutions were allowed to conduct transactions in derivatives and other instruments and to invest their convertible foreign exchange in various financial instruments, provided these transactions were approved by the board of the respective banks and financial institutions.

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