Trade deficit drops 3.96 percent

As of October in the current fiscal year 2024/25, Nepal’s trade deficit has decreased by 3.96 percent compared to the previous year. In the last fiscal year, Nepal faced a trade deficit of Rs 366.8bn, while in the first three months of this fiscal year, the deficit stands at Rs 352.3bn, indicating some improvement.

Nepal’s economy has long relied heavily on imports, with exports constituting only about 10 percent of total imports. For every Rs 100,000 of imports, only Rs 10,000 worth of exports occur, leading to a persistent trade deficit. In the first three months of the current fiscal year, both imports and exports have decreased.

The country continues to face trade deficits year after year due to its inability to increase domestic production. The trade deficit remains substantial because exports cannot keep pace with imports. However, a slight reduction in imports has recently contributed to a minor decrease in the deficit, though the change is not significant. Business owners report that the production capacity of domestic industries is steadily declining.

Petroleum products, machinery, electrical equipment, vehicles and parts, plastic goods, fertilizers, pharmaceuticals, vegetables, textiles, and food items make up the largest share of imports, significantly widening the trade deficit. Nevertheless, imports have contracted compared to the same period last fiscal year.

According to foreign trade statistics released by the Customs Department on Wednesday, approximately Rs 47.75bn worth of goods were imported in October last year. In the first three months of fiscal year 2024/25, imports have decreased by 4.17 percent. Goods and services imports have led to an outflow of foreign currency equivalent to Rs 390.75bn, with petroleum products alone accounting for Rs 66.9bn, the largest share. Iron and steel follow, with an import value of Rs 33.11bn.

Since the Covid-19 pandemic, the production capacity of domestic industries has declined, which has also hindered exports. Compared to last fiscal year, exports have decreased by 6.11 percent at the start of October. Last year, exports totaled Rs 40.8bn in the first three months, while this year, they have fallen to Rs 38.3bn. The main export items include tea, coffee, spices, carpets, rugs, and handicrafts.

While imports amount to Rs 39bn, exports total just Rs 38bn, and petroleum products alone account for Rs 66.9bn in imports. Approximately 60 percent to 65 percent of all goods and services imported into Nepal come from India. Currently, Nepal imports essential goods and services from 132 different countries.

The production of export goods in Nepal has helped increase export volumes and earn foreign currency. In the first three months of this fiscal year, exports of tea, coffee, and spices reached Rs 3.4bn. The second-largest export is human-made staple fiber, valued at Rs 3.2bn, while carpets and other textile floor coverings are the third-largest, at Rs 377m. Other exports are valued at less than Rs 3bn.

In the first three months of the fiscal year, goods and services worth Rs 2.4bn were imported from India, accounting for 62 percent of total imports. Imports from China totaled Rs 78.6bn, while imports from Ukraine, Australia, and Argentina were Rs 6.5bn, Rs 5.6bn, and Rs 4.9bn, respectively.

Nepal imports basic goods and services from 132 countries while exporting to around 100 countries. India remains Nepal's top export market, with exports totaling Rs 24.8bn as of October. The United States is the second-largest export destination, accounting for Rs 4.7bn in the first three months. Exports to Germany, the UK, and Japan totaled Rs 1.23bn, Rs 13m, and Rs 59.9m, respectively.