Import Growth Rebounds After Contraction: Impact on Trade Balance

Nepal’s import dynamics have shifted notably in FY 2082/83 (2025/26), marking a rebound after two consecutive years of contraction. Imports had declined by -16.1% in FY 2022/23 and -1.2% in FY 2023/24, reflecting subdued domestic demand, tighter liquidity, and government restrictions on luxury goods. However, by FY 2024/25, imports rose by 13.3%, and in the early months of 2082/83, they continued to grow by 11.4% year-on-year, reaching Rs. 143 billion by mid-August.

This rebound suggests that economic activity is regaining momentum. Rising imports of intermediate and capital goods indicate renewed demand for industrial production and construction projects, while consumer imports highlight recovering household spending as inflation has eased to 1.68% by mid-August 2082/83. The import surge also reflects easier foreign exchange conditions, with reserves climbing to over USD 20 billion, giving Nepal space to finance higher imports.

The impact on the trade balance, however, remains mixed. While export growth has been exceptionally strong—nearly doubling by 95.7% in early 2082/83—imports still far exceed exports in absolute terms. For example, exports totaled only Rs. 23.9 billion by mid-August compared to imports of Rs. 143 billion, keeping the trade deficit wide. Nonetheless, the overall external sector position has improved significantly due to robust remittance inflows (Rs. 177 billion by mid-August) and a stronger balance of payments (BOP surplus of Rs. 89.3 billion).

In essence, while higher imports reduce the immediate gains from export growth, they also signal reviving domestic demand and investment activity, which are necessary for longer-term growth. The key policy challenge is to ensure that import growth is tilted toward productive goods—like machinery and raw materials—rather than consumption-heavy or luxury items that widen the deficit without creating future capacity.