Rs 761 bn flew out of Nepal in a decade

KATHMANDU:

Nepal has become the third largest hub in South Asia to report illicit financial outflows, with the country recording flight of a whopping $7.54 billion (Rs 761.61 billion as per current exchange rate) through illegal means between 2003 and 2012, the latest global report shows.

This means around four per cent of the GDP moves out of the country illegally per year, considering last fiscal’s GDP of Rs 1.93 trillion and average annual illicit financial outflow of $754 million.

Of the total illicit financial outflows from the country in the 10-year period, 96 per cent of the funds, or $7.25 billion, were transferred through import over-invoicing, states the report, ‘Illicit Financial Flows from Developing Countries: 2003-2012’, prepared by Global Financial Integrity, a US-based non-profit research and advisory organisation.

This means importers are tricking banks to issue payment instruments, such as letters of credit, of a fat amount but are not making that payment to parties overseas. “(This) is possible due to the fact that trading partners write their own trade documents,” states the report, adding this way ‘corrupt government officials, criminals, and commercial tax evaders are able to easily move assets out of countries and into tax havens, anonymous companies, and secret bank accounts’.

So, all the funds transferred abroad by the country’s importers are not being used to pay suppliers overseas.

A small portion of the money, around $288 million, also left the country in the 10-year period due to leakages in the balance of payments, also known as illicit hot money narrow outflows. This is derived from the Net Errors and Omissions line in the International Monetary Fund’s Balance of Payments Statistics database.

Despite huge illicit flow of funds recorded in the 10-year period, what is encouraging is that illegal outflow fell to $106 million in

2012. This is the same around the globe. “We are not certain as to why growth in illicit outflows appears to have slowed down, (but it may be) due to incomplete or inaccurate data reporting,” adds the report.

The top five exporters of illicit capital over the past 10 years on average were China, Russia, Mexico, India, and Malaysia, states the report.

Capital flight from South Asian countries

Afghanistan – $2.22 bn

Bangladesh - $13.16 bn

Bhutan - $312 m

India - $439.59 bn

Maldives - $746 m

Nepal - $7.54 bn

Pakistan - $1.43 bn

Sri Lanka - $2.21 bn

Source: THT