Why is Nepal asking citizens abroad to deposit funds in local banks?

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Nepal Seeks Overseas Nationals' Financial Support to Bolster Liquidity and Foreign Exchange Reserves

Nepal is encouraging its citizens living abroad to deposit funds in domestic banks as a strategic measure to enhance the liquidity within its financial system and to preserve its dwindling foreign exchange reserves. This initiative, articulated by Finance Minister Janardan Sharma, aims to leverage the financial contributions of the Nepali diaspora to address current economic constraints. Sharma highlighted that such deposits would not only strengthen the nation's financial footing but also offer tangible benefits to the depositors themselves.
Financial Incentives for the Diaspora

Overseas Nepalis are being encouraged to deposit their savings in Nepali banks by the prospect of earning competitive interest rates. Finance Minister Janardan Sharma stated that these domestic institutions are offering an interest rate ranging between 6% and 7% on such deposits. This financial incentive is designed to encourage individuals to repatriate their funds, thereby contributing to the nation's liquidity.
Addressing Liquidity Constraints

The government believes that a significant influx of funds from its citizens abroad could substantially alleviate the country's current liquidity challenges. Sharma provided a projection, suggesting that if 100,000 Nepali nationals living overseas were to deposit US$10,000 each, it could provide a considerable boost to Nepal's financial resources. This collective contribution is seen as a viable pathway to overcoming the existing constraints on the financial system.
Preserving Foreign Exchange Reserves

Beyond addressing immediate liquidity needs, the initiative also serves the critical purpose of safeguarding Nepal's foreign exchange reserves. As of mid-March, these reserves had fallen by over 18% to US$9.6 billion, a level sufficient for approximately six months of imports. By encouraging overseas Nepalis to deposit funds in local currency, the government aims to reduce the pressure on foreign currency outflows and bolster the overall reserve position.
Economic Context and Government Reassurance

This appeal to the diaspora comes amidst broader economic pressures, including the impact of soaring commodity prices and a slow recovery in the tourism sector post-Covid-19. Despite these challenges, Finance Minister Sharma has asserted that Nepal is not facing an economic crisis comparable to that of Sri Lanka. The country has also implemented measures such as curbs on luxury goods imports to manage capital outflows and is seeking international financial assistance, including a grant from the United States and a soft loan from the World Bank.

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Why is Nepal asking citizens abroad to deposit funds in local banks?

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