The Department of Customs (DoC) reported that the negative trade balance increased from NPR 362.29 billion to NPR 568.17 billion between mid-July and mid-November.

However, during this period, the Himalayan nation offset some negativity by earning NPR 82.12 billion in exports. These earnings were double the amount of earnings that Nepal generated during the last year’s period.

Nepal’s total export trade increased up to 11.21 percent from 9.08 percent. However, the nation was unable to offset the import expenses with its export revenue.

The import expenses shot up to NPR 650.29 billion, which saddled the landlocked country with a trade deficit of NPR 319 billion with India, Nepal’s most significant trading ally.

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The DoI proposed the amount based on the goods exported by the mentioned industries in the FY 2020/21.

In FY 2020/21, the Himalayan nation exported goods worth NPR 141.12 billion. Edible oil is the most exported product, observing exports worth NPR 55.5 billion. It is followed by tea and coffee, with exports worth NPR 11.76 billion. Textile, woolen carpets, and ready-made garments are in the next positions.

Nepal Rastra Bank will provide the incentives as per the DoI recommendations, on par with the working guideline on cash incentives on exports.

The cash incentives provided by the Nepali Government are as follows:

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According to the Department of Customs, the Himalayan nation exported goods worth NPR 121.25 billion in the first 11 months of the current FY, an increase of 37.78% from the same period last FY 2019/20. The exports amounted to NPR 88 billion in the review period last fiscal.

Legume oil, carpet, cardamom, tea, and jute carpet remained the top export goods in the current fiscal.

Likewise, Nepal imported goods worth NPR 1383.36 billion during the review period this fiscal, which is 25.67% more than that in the last fiscal. In the previous fiscal, the nation had imported goods and services worth NPR 1100.81 billion.

The top importing goods in the current FY are diesel, iron products (steel), legume oil, mobile phone, cooking gas, and petrol.

According to the Customs Department, the imports contributed a share of 91.94% to the nation’s foreign trade, while the exports stand at 8.06%.

In line with this, Nepal’s trade deficit in FY 2020/21 has worsened by 24.1%.

In the latest month period from mid-May to mid-June, the South Asian country imported goods worth NPR 129.25 billion while the exports amounted to just NPR 12.77 billion.

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Business activities in the country fell drastically as the pandemic hindered operations, reduced footfall in shops, and led to a decline in demand.

This, in turn, led to the fall in the nation’s import expenditure.

According to the Department of Customs, Nepal’s import expenditure dropped by 19.6% in the first month of the current FY 2020/21.

Nepal imported goods worth NPR 85.80 billion during mid-July and mid-August in the current fiscal, compared to NPR 106.72 billion worth import in the same period last fiscal.

Some of the top imports include:

• Petroleum products – NPR 8.84 billion
• Electric goods – NPR 8.29 billion
• Cereals – NPR 6.62 billion
• Iron and steel – NPR 6.54 billion

On the other hand, Nepal’s export value stood at NPR 9.62 billion during the review period in the current fiscal, up by 8.86% from last fiscal.

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Some of the top exports include:

• Fat and oil – NPR 2.30 billion
• Tea and coffee – NPR 1.36 billion
• Woolen carpets – NPR 723.5 million
• Yarn – NPR 564.8 million

The significant fall in imports and the rise in exports have led to the dramatic fall of 22% in the trade deficit.

The trade deficit stood at NPR 76.18 billion in the first month of the current fiscal, against NPR 97.88 billion in the last fiscal.

Likewise, the ratio of import to export declined to 8.92 from 12.08.

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Senior officials from Nepal and India met at Pokhara to review the 2009 Trade Treaty signed by both countries.

The two-day meeting is the second Nepal-India Joint Secretary-level meeting since 2009, where India will respond to Nepal’s proposal of updating the treaty submitted in the first meeting in August 2018.

As part of the meeting, Nepal and India discussed various of interest pertaining to trade, business and connectivity.

The Indian delegation was headed by Department of Commerce Joint Secretary (South Asia) Bhupinder Singh Bhalla, while the Nepali delegation is represented by Ministry of Industry, Commerce and Supplies Joint Secretary Ravi Shankar Saiju.

Request for Access to Additional Indian Ports

Nepal has requested Indian side to give it access to two additional Indian ports for shipment of its goods.

While the Himalayan nation already has access to Visakhapatnam and Kolkata ports, they have made proposal seeking access to Mundra Port of Gujarat and Dhamra Port of Odisha.

“Nepal has presented a proposal to have access to two additional ports, namely the Mundra port in Gujarat and Dhamara port in Odisha. The Indian side has given a positive reaction over the proposal but a concrete agreement is yet to be made,” said an official from Nepal’s Ministry of Industry, Commerce and Supplies.

Amendments to the India-Nepal Treaty 1990 was one of the key agendas of this Joint Secretary level meeting held in Pokhara.

Other Trade-related Matters Raised

Nepal also sought India’s help in reducing its rising trade deficit through free access of Nepali products in the Indian market.

“Nepal’s trade deficit, especially with India, is constantly widening while our products are finding it difficult in finding proper space in the Indian market. We plan to discuss in detail on how to address these issues through the bilateral trade treaty,” informed Ravi Shankar Saiju, joint secretary at MoICS.

During the two-day trade treaty review meeting, Nepal also raised about giving the Nepali side preference for export of agricultural products and integration of Nepali manufacturing units to its value chain.

Additionally, the Himalayan nation also sought India to review the preference erosion and reciprocity in import & export of agricultural goods and some manufacturing products listed in the treaty.

Despite the treaty’s zero-tariff export facility on different Nepali products, Indian authorities have been imposing various additional taxes on Nepali goods. The Nepali side will also bring this up for discussion at the two-day meeting.

The meeting discussed various options to address different non-tariff barriers in Nepal-India trade and enhancement of Nepal-India connectivity through railway, waterway and roadway.

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Addressing at the event, Oli urged the Nepal Intermodal Transport Development Board (NITDB) to ensure that the project implementation will be a sustainable and reliable solution for the country’s trade movement.

“Since this project is of great importance, regular inspection and evaluation of the project will be conducted. With optimum effort on the government’s side, I hope this project will be an exemplary one,” says Oli.

Speaking on the occasion, Finance Minister Yuba Raj Khatiwada and Commerce & Supplies Matrika Prasad Yadav expressed hope that dry ports and related infrastructure will facilitate businesses and transportation business of the country.

The dry port is expected to bring in a relief for easy movement of goods and services in and out of the Kathmandu Valley, upon the implementation of the Kathmandu-Tarai Expressway to be completed in 19 months.

The port is being built in around 11.77 hectares of land and is getting USD 22 million fund assistance from the World Bank.

The new dry port is part of the Nepal-India Regional Trade and Transport Project.

The complete port setup includes fully-equipped warehouses, administrative buildings for customs, quarantine, parking lots, bank and other facilities required for customs clearance, along with the office of NITDB.

The port holds capacity to accommodate 626 20-feet containers and 205 trucks in its parking lots, loading and unloading facilities and 6 warehouses.

Considering the current trade scenario, the new depot has been designed to fulfil the traffic flow until 2039.

NITDB is also ready with a master plan for the development of the International Exhibition Venue along with ICD in 1,054 ropani of land owned by the Ministry of Industry, Commerce and Supplies in Chobhar.

Hope the new developments will add to the government’s plans to boost Nepal’s trade while addressing the existing concerns.

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This situation prevails despite a decent rise in remittance incomes and facilitation of foreign exchange requirements for Nepalis visiting overseas following the balance of payments crisis.

As per latest reports of the Nepal Rastra Bank (NRB), the country’s foreign exchange reserves stand at USD 9.4 billion as of November 2018, similar to March 2016.

This fall in forex reserves has been continuing since July 2018 due to rise in imports.

According to the Central Bank, the current reserves are sufficient to deal with prospective merchandise imports of 9.2 months and merchandise & services imports of 7.9 months.

Outflow of reserves exceeded the inflows to the Central Bank during the first four months of the fiscal, NRB added.

The outflow surpassed inflows by NPR 57.3 billion during the period, resulting in a balance of payments deficit of Rs 57.3 billion between mid-July and mid-November.

This situation was observed despite 36.4 percent rise in remittance inflows (around NPR 312.3 billion), which got affected by a 35.8 percent rise in imports during the period.

Major concern here was the mismatch in trade during the period. While imports saw an 18.1 percent high, year-on-year, exports grew by a modest 11 per cent to NPR 29.3 billion. This eventually widened the country’s trade deficit by 37.8 per cent.

On the other side, while Nepalis spent NPR 34.9 billion overseas, the country received only NPR 25.1 billion in earnings from foreign visitors.

Foreign Direct Investment is another important factor that fell from 51.3 per cent to Rs 4.9 billion in the first four months of current fiscal, contributing to overall forex decline.

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As the latest reports say, the country’s trade deficit widened 40.3 percent in the first four months of the current fiscal year, majorly attributed to the rise of imports by the agriculture and fuel goods.

According to Nepal Trade Export Promotion Council, the trade deficit was measured at NPR 454.47 billion as of mid-November 2018, with exports of tariff-targeted goods balancing the trade.

While the import bill is soaring at NPR 483.75 billion, showing a 38.1 percent rise over the previous record, the export earnings showed a little rise of 10.6 percent up to NPR 29.28 billion.

Overall, the export-to-import earning ratio shows exports standing at NPR 1 /- against import expenses of NPR 16.5/-.

Over dependence on imported goods, as a result of challenges in production and supply, resulted in this widening trade deficit, says Suyash Khanal, Deputy Executive Director, TEPC.

“Although exports of yarn, carpet, iron products, tea and textile are getting better, they are not enough to balance the ever-increasing trade deficit,” Suyash adds.

Fuel, the Biggest Contributor to Deficit
Fuel stands out to be the biggest contributor the trade deficit. Nepal’s petroleum product imports in the first four months of the current fiscal amounted to NPR 69.07 billion in revenues, showing a rise over 68.2 percent, year-on-year.

Iron & related products are second in the list accounting to NPR 58.2 billion worth imports during the four-month period, up 62 percent Y-o-Y, majorly due to high infrastructure & reconstruction activity across the nation, adds Khanal.

Nepal’s agricultural imports are next in the list growing in costlier. According to TEPC, the share of agro & petroleum imports was 30 percent of the total import bill during the review period of the current fiscal.

Export Earnings
Yarn exports witnessed a new high of 19 percent to NPR 2.93 billion during the first four months of the fiscal year, with around 13 percent contribution to the export basket. Woolen carpet exports also increased 17.9 percent to result in NPR 2.76 billion earnings.

Readymade garment is another area that contributed to export earnings with 12.1 percent rise to NPR 2.40 billion in revenue.

Import aside, iron & related products also contributed to exports by showing a 47 percent rise to NPR 2.21 billion.

According to Khanal, Nepal needs to make strategies for promotion of its products in the international market for good incomes and balanced trade. He reports positive signs in promoting tariff-targeted goods.

“We must diversify our export basket, particularly handmade goods which are in high demand in the overseas market, so that our export shipments increase rapidly,” adds Khanal.

Meanwhile, Posh Raj Pandey, Executive Chairman of the South Asia Watch on Trade, Economics and Environment, noted that the country should start exploring niche markets to expand their export earnings.

“Nepal needs to sign bilateral agreements to promote export of specific goods to the countries where their demand is growing,” Pandey adds.

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While there are 77 such products in the list, the US Department granted access to the Nepali readymade garments.

US officials confirmed this at the fourth meeting of the Nepal-US Trade and Investment Framework Agreement (TIFA) Council held in US on November 13, 2018, said the Nepali Ministry of Industry, Commerce and Supplies.

“The participants of the meeting expressed their commitment that they would forward the proposal to the US Congress soon,” said the Ministry’s Secretary Chandra Kumar Ghimire.

Ghimire-led Nepali delegation held discussions with various US departments officials led by the Assistant US Trade Representative Mark Linscott.

As part of TPA in 2015, US had provided duty free access to around 77 Nepali products that hold high potential in trade with US. These include carpets and pashmina, headgear, scarves, travel goods and shawls. US kept the offer open until 2025.

Now, Nepali side pushed for inclusion of Nepali garments to the list owing to the products’ high competitive advantage.

“We highlighted to the US officials that Nepal has not been able to benefit from the trading of some items facilitated under TPA and to consider the inclusion of other goods which have larger export potential,” informed Ghimire.

He further added that they have also sought the US Government support with regard to exports until the time Nepal comes out of its political transition phase.

US Government has also expressed its willingness to offer technical support to Nepal to promote the production of goods under TPA list.

According to the Ministry officials, US has considered Nepal (among other South Asian countries) as its high priority with regard to promoting bilateral trade and investment.

Ghimire also informed that US officials were concerned about investment climate in Nepal.

“Implementation of existing provision in labor act, improvement in the law related to intellectual property right including copyright and facilitation of e-commerce are also major areas of interest of the US before they inject their investment in Nepal,” Ghimire adds.

Nepal signed TIFA with US on April 16, 2011 and the two countries agreed to hold the TIFA council every year under the provision and the last meeting was held in Kathmandu on April 20, 2017.

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While it’s evident that the Himalayan nation has high trade deficit with its neighboring nations, recent reports confirm that the case happens to be the same for the country even with many other countries, globally.

Recent statistics by Nepal Department of Customs confirmed that out of 140 nations that Nepal has trade relations with, the Himalayan nation is enjoying trade surplus with only 28 and is facing a widening deficit with other 112 countries.

Out of the country’s total gross trade deficit of over Rs 222.9 billion, the highest volume was found with neighboring India and China, followed by France.

Over the last three months, Nepal made close to Rs 249 billion trade with India with Rs 236.1 billion in imports and Rs 13.16 billion in exports.

Whereas, it was Rs 53.11 billion in imports and Rs 560.4 million in exports in its trade with China.

When it comes to France, the statistics show Rs 14.26 billion in imports and Rs 352.2 million in exports.

Likewise, Nepal is facing a negative balance of trade with other countries such as UAE, Thailand, Switzerland, Indonesia, Canada, Malaysia, Argentina, Ukraine, Saudi Arabia, South Africa, Italy, Vietnam, South Korea, Australia, Turkmenistan, Taiwan, Japan, Singapore and Hong Kong, among others.

On the positive side, the Himalayan nation is enjoying surplus in trade with US, where exports were found exceeding imports resulting in Rs 668.3 million in profits for Nepal for trade worth Rs 3.19 billion.

Other countries that showed positive trend for Nepal trade include Finland, Austria, Maldives, Norway, Estonia, Afghanistan, Morocco, El Salvador, Uruguay, Lebanon and Cyprus.

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• Birgunj – Trade Gateway to Nepal
• Bharatpur: Nepal’s Center of Trade
• Alerts on Trade, Human Rights and Security

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