Despite positive exceptions, the overall economic slowdown, cautious investment climate, and high dependency on imports negatively impact the country’s trade balance.
Nepal’s foreign trade has significantly declined in the first ten months of the current fiscal year, with a gap of approximately 271 million dollars in the balance of exports and imports. This decline is primarily attributed to the country’s ongoing economic slowdown.
The reduced trade volume is linked to decreased consumption and investment. Despite banks lowering interest rates, investors remain hesitant to take loans. During the review period, imports dropped 2 per cent, while exports declined 3.6 per cent. As a result, the trade deficit was 2.26 per cent less favourable than last year. Export earnings constituted 8.83 per cent of the total trade volume, while imports comprised 91.2 per cent. This indicates that for every rupee earned from exports, Nepal spends 10.3 rupees on imports.
Foreign development investment:
Customs records reveal that monthly imports peaked during the festive months of Dashain and Tihar (midSeptember to mid-October) but declined steadily in the following months. The decrease in trade volume adversely affected the government’s revenue collection targets. With two months remaining in the fiscal year, the government achieved less than 60 per cent of its target.
In a positive development, Nepal received the second-largest foreign development investment (FDI) commitment, worth 452.2 million dollars, in the fiscal year 2023/24. Over 400 foreign firms proposed to employ over 19 thousand people.
The highest FDI commitment was noted in the fiscal year 2014/2015, just after the devastating earthquakes. In the following years, the pledges dropped significantly and rose again, with notable increases during investment summits. The government has lowered the minimum threshold for FDI to attract more foreign investors, especially in small and medium-sized enterprises.
Trading partners
India remains Nepal’s largest trading partner, selling nine times more goods to Nepal than buying from its southern neighbours. China had the second-largest trade gap, albeit far less profound. The United Arab Emirates, Ukraine, and Malaysia were third, fourth, and fifth, respectively.
Nepal recorded its highest trade profit with Denmark, followed by Afghanistan.
The principal imports were diesel, petrol, and LPG (cooking gas). Iron products, smartphones, and gold were also significant imports.
Nepal exported carpets, cardamom, fruit products, and steel.
Sudipa Mahato is a junior writer with Nepal Connect.
