Foreign trade: Decline in imports and exports leaves Nepal in a difficult position

The eight-months long import restrictions have made quite an impact on the country's foreign trade. Official statistics show Nepal's imports declined by 20.68 percent and trade deficit by 19.15 percent in the first six months of the current fiscal year. While the import restrictions on vehicles, expensive mobile sets, and foreign liquors, helped the country to avert a looming forex reserves crisis, the government's revenue, which is import-centric, took a big beating in the first half of the current fiscal year. Nepal's imports have declined by 20.68 percent while exports slumped by 32.01 percent in the first six months of the current fiscal year. According to the latest foreign trade data released by the Department of Customs (DoC), the country's import bill stood at Rs 792.66 billion in the first half of FY 2022/23 compared to Rs 999.34 billion during the same period of FY 2021/22.

Similarly, the export bill stood at Rs 80.80 billion in the review period compared to Rs 118.85 billion in the corresponding period of the last fiscal year. The country's overall foreign trade declined by 21.89 percent to Rs 873.47 billion in the first half of FY 2022/23.

With the slowdown in economic activities and a contraction in the overall market demand as a persistently high inflation rate and a squeeze in liquidity in the financial put a dent in the pockets of consumers, the imports of high revenue-generating goods such as industrial raw materials, gold, mobile phones, vehicles, crude soyabean oil, and crude palm oil have declined in this fiscal. On the other hand, the import of agricultural products has increased due to the inability to increase the production of agricultural goods that can be produced domestically. It is not only the imports that have declined; the worrying fact is the country's exports have also decreased during this period. As per DoC data, Nepal's exports have declined by 32 percent to Rs 80.80 billion in the first half of the current fiscal year, particularly due to the dramatic decline in the exports of palm oil, soyabean oil, and sunflower oil to India. In the last 2-3 years, Nepal’s export figure has largely been dominated by two products—palm oil and soyabean oil, which are basically not produced in Nepal. The edible oils are brought in crude form, refined and packaged in Nepal-based refineries and exported to India. It is believed that many producers even import refined oils, repackage and label the products and export them to India which has no to little value addition as products made in Nepal. The ballooning of exports of edible oils led Nepal’s overall exports to touch the Rs 200 billion mark for the first time in history in FY 2021/22. The contribution of edible oils to the country's overall export was Rs 93.69 billion. Nepal export palm oil and soyabean oil worth Rs 89.18 billion in the last fiscal year which accounts for around 45 percent of Nepal’s total exports. However, the exports of edible oils have slumped massively in the first half of FY 2022/23. The exports of palm oil slumped to Rs 13.08 billion from Rs 31.97 billion. Likewise, exports of soyabean oil also dipped to Rs 8 billion in the first six months of this fiscal from Rs 34.26 billion in the same period last fiscal year. Despite the huge drop in the export of edible oils, official data suggest that there has not been a significant drop in other products which are exported on a large scale. The country’s exports of these products suffered after India lowered its customs tariff to help tame the rising inflation in October 2021. The largest South Asian economy lowered the import duty on crude varieties of palm oil, soybean oil, and sunflower oil to zero. However, after taking into account the 5 percent agri cess and 10 percent social welfare cess, the effective duty on crude forms of these three types of edible oil is at 5.5 percent. At the start of 2021, effective customs duty on palm, soybean and sunflower oils reached as high as 35.75 percent. With the Indian government removing the import duty on these edible oils, the duty differential advantage Nepali exporters had was gone. Nepal currently levies a one percent customs duty and a 13 percent VAT on the import of these three types of edible oil. The Indian government’s decision to abolish customs duty on raw soybean oil and palm oil has badly affected Nepal's exports. The producers are currently exporting the edible oils only one-fifth of what they used to export until India abolished the import duty. And, it seems India will not hike duty on the import of these products anytime soon. In late December last year, the Indian government extended the policy of keeping lower tariffs on vegetable oil till March 2024. These products also don’t qualify to get the export subsidies that the government announced through the budget for the current fiscal year. Foreign Trade (First Six Months)

Trade Indicators FY 2021/22 (First Six Months) (in Rs, in bn) FY 2022/23 (First Six Months) (in Rs, in bn) Change (in percent)
Imports 999.34 792.66 -20.68
Exports 118.85 80.80 -32.01
Trade Deficit 880.49 711.85 -19.15
Total  Foreign Trade 1118.19 873.47 -21.89
  Top Ten Import Items FY 2022/23 (First Six Months)
Item FY 2022/23 (in Rs, in bn) Change (in percent)
Petroleum Product 143.784 14.155
Crude Soyabean Oil 23.754 -34.991
Ferrous Products 19.220 111.046
Unwrought Gold 18.246 1396.8
Crude Palm Oil 16.713 -39.205
Mobile Phone 14.322 -44.117
Hot-rolled steel alloys 12.164
Other - Medicaments 11.938 -9.189
Gold 10.957 -50.283
Semi-finished products of iron or non-alloy steel 10.430 -60.543
  Top Ten Export Items FY 2022/23 (First Six Months)  
Commodities FY 2022/23 (First Six Months) (in Rs, in bn)
Palm oil 13.087
Soyabean oil 8.009
Yarns 5.94
Woolen Carpet 5.46
Iron and Steel products 2.814
Readymade Garments 4.12
Jute and Jute Products 4.049
Cardamom 3.74
Iron and Steel products 2.814
Woolen Felt Products 2.655
Juices 2.623
  TOP 10 IMPORT DESTINATION  
Country Import Value (in Rs, in bn)
India 486.333
China 109.978
Indonesia 24.878
United Arab Emirates 18.072
Argentina 16.590
Malaysia 9.854
Qatar 9.655
United States 8.985
Oman 8.909
Australia 8.119
  TOP 10 EXPORT DESTINATION  
Country Export Value (in Rs, in bn)
India 57.844
United States 9.122
Germany 2.060
United Kingdom 1.564
Turkey 0.999
France 0.908
Australia 0.779
Japan 0.752
Canada 0.667
Italy 0.644