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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According to data from the Department of Customs, Nepal imported commodities worth NPR 1.42 trillion in the last fiscal, whereas it’s revenue earned from exports stood at NPR 97.11 billion.

Even though the export rate – 19.36 percent exceeded the country’s import rate – 13.93 percent in the last year, Nepal’s increasing trade deficit is become a matter of serious concern.

Nepal exports to imports ratio fell to 1:14:6 in the last fiscal year while the export earnings were NPR 97.11 billion. This amounts to an import of goods worth NPR 14.6 for every rupee earned on exports.

Of trade done with 157 countries, Nepal has a trade deficit with 134 countries and a positive trade balance with 23 countries including Afghanistan NPR 14.29 million, Central African Republic NPR 275.85 million and Maldives NPR 6.2 million.

On the other hand, Nepal has projected the highest trade deficit with India and China, NPR 855.19 billion and 203.4 billion, respectively.

Nepal imports and exports with India stood at NPR 917.92 billion and NPR 62.73 billion, respectively. While with China, the imports and exports stood at NPR 2.1 billion and NPR 205.52 billion respectively.

Even though the government has adopted the measure of restricting imports, the trade deficit has further deepened in the last few months.

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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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In its new decision, the government has set a limit for withdrawals made on Nepali debit or credit cards in India.

The Nepal Rastra Bank (NRB), in its notification on December 25, 2018, has set NPR 1 lakh per month limit for almost all payments directly or part of rendering services in India.

However, the new rule exempts transactions involving hotel bills, hospitals and pharmaceutical stores.

The Central Bank considered this as a move to curtail cash spending on unproductive purchases in India, which are usually made on Point of Sale (POS) systems.

The new policy that applies to all payments on goods and services was reportedly implemented to tackle Nepal’s widening current account deficit and covers all types of prepaid, credit and debit cards of all Nepali banks.

The new decision has been taken to address the growing current account deficit and the balance of payment crisis, says Central Bank Spokesperson Narayan Prasad Paudel.

Paudel further added that Nepal continues to handle demonetization after-effects and is waiting for India’s response on demonetized Indian currency notes.

The new policy is coming exactly two weeks after Nepal Government announced complete ban on high-value Indian currency notes on account of demonetization.

What Economists Say?
Senior Nepali economists opine that the new policy is the result of India’s demonetization effect on Nepal and is coming after a series of issues following the announcement of demonetization in 2016.

Kathmandu-based Achyut Wagle says that the demonetization policy has sent negative signals to Nepalis and Kathmandu is now taking measures to secure itself from any similar moves from India in the future.

Wagle says that the new decision also echoes Nepal Government’s readiness to stay prepared to similar situations in the future.

“India’s demonetization affected Nepal negatively and has been criticized in recent months. Tuesday’s decision is an independent move by Nepal and our government decided to go ahead without really holding consultation with India,” reads Wagle’s statement.

“The last time India went for demonetization we were left holding huge amount of Indian currency that has not been exchanged so far by Delhi. So, this time we are trying to minimize the risks in advance just in case India plans to repeat a similar exercise as there are continuous rumors in the Nepali bazaar about one more possible demonetization by Mr. Modi,” Wagle added.

Besides affecting spending patterns, the new policy is also expected to impact trade-related business across the Indo-Nepal border areas, where Nepali businessmen usually transact in Indian currency.

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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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In a move towards meeting domestic gold demands during the festival season, the government has decided to increase the daily quota on import of gold from 20 kg to 25 kg.

The new decision taken last week is triggering concerns over trade deficit that the country is already suffering because of burgeoning import bills.

“As the payment for gold import must be settled in US dollar, it will worsen the Balance of Payments (BoP) situation of the country. However, the decision could help control the possible smuggling of gold when demand soars during festival season,” says Economist Madan Kumar Dahal.

Trade balance has not been in control of the country since long majorly due to high imports and slow growth in exports.

With a huge difference, Nepal’s import bill rose to an all-time high of Rs 120 billion against export earnings of Rs 6.92 billion in the very first month of the current fiscal that began mid-July 2018.

With the rise in BoP balance, the foreign reserves of the country also declined.

“Keeping in mind the possible adverse impact on the BoP, the Ministry has raised the gold quota only up to mid-December. Although the central bank had asked to increase quota by additional 10 kg a day, we denied the proposal, citing the country’s BoP position,” says Rabi Shankar Sainju, Spokesperson, Ministry of Industry, Commerce and Supplies.

Whereas, NRB says they have decided to revise the decision to import gold owing to the pressure being laid by the local jewellers in view of the festival season.

Will have to see how the government and the central bank play a level-playing field managing the festival demands and the country’s worsening trade deficit.

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The news comes as a serious concern for Nepal as the country’s imports through sea route majorly happens via the Kolkata Port.

“We are worried. Almost all of Nepal’s imports are routed through this port. The collapse of the bridge is definitely going to impact movement of goods,” stated Eaknarayan Aryal, Consul General of Nepal in Kolkata.

Post his visit to the site, Aryal said the chairman and traffic manager of the port are holding meetings on ways to minimise the impact to the trade traffic.

The collapse of the bridge is leading to the closure of trade traffic for a long period via the Diamond Harbor Road, the route that hosts the Majerhat bridge.

Another key part associated with the bridge is the Kolkata Dock Complex, which witnesses nearly 1,300 trucks for entry and exit per day.

Speaking in detail about the situation, the Kolkata Port Trust (KoPT) official says that the collapse will have impact on the movement of goods.

“KoPT has dealt with 80,000 containers only for Nepal in 2017-18. This is supposed to go up to 1 lakh this year. There may be some problem in the movement of traffic. However, we are working with the police and local administration to find alternative routes,” says KoPT Spokesperson.

While KoPT is the nearest port for Nepal helping the country in import of goods such as cars, electronic items, general items of routine use, most of the goods are also traded through Bihar and cross the Nepali border at Birgunj.

Vegetables, handicrafts and forest produce are some of the Nepali imports via the Kolkata Port.

While the Spokesperson also clarifies that the trade between Kolkata and Nepal also has rail connectivity as an alternative route.

“Much of our cargo to Nepal goes through the rail route. On an average, we send a train load of goods to Nepal every day. Fortunately, any part of the bridge did not fall on the rail tracks and rail services are running now normally,” says the Spokesperson.

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The decision comes after sugar from major trade partners India and Pakistan have flooded the market, making it difficult for the country’s sugar mills to clear stocks that are relatively costlier than imported sugar.

According to a MoICS official, Nepal Ministry of Industry, Commerce and Supplies (MoICS) has recently submitted a proposal to the Nepal Cabinet to ‘put a hold’ on sugar imports for a certain time until the country’s sugar stock has been completely cleared.

 “During our inspection, we found out that the local sugar mills are facing difficulty in clearing their stocks. Thus, we have recommended halting import of sugar for a certain period,” said the official

Similarly, a few weeks ago, MoICS Joint Secretary Nabaraj Dhakal along with the members of the study committee had also suggested that the government halt sugar imports and increase the import duty to create for the country’s sugar stock.

Following huge pressure from Nepal sugar mill operators, the government had taken this measure during March, by increasing the import duty to 30 percent from 15.

However, the government failed to bring about the expected scenario.

Sugar mill operators were persuading the government to raise import tax on sugar stating that they were not only facing difficulty in clearing sugar stocks but were also not able to make payments to sugar cane farmers. They claim that more than Rs 7 billion worth sugar is lying at their warehouses.

“The production cost of Nepali sugar is much higher compared to its production cost in India and other countries. Halting sugar import completely for some time will give relief to sugar mills and ensure that sugarcane farmers get their payment on time,” said Rajesh Kedia, General Secretary, NSMA.

Nepal Sugar Mills Association (NSMA) states that out of the 178,000 tons of sugar produced in Nepal last year only 60,000 tons have been sold so far.

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