Nepal’s Trade Deficit Widens Despite Strong Export Growth, Import Pressure Persists

Kathmandu — Nepal’s external sector continues to reflect a structurally imbalanced trade pattern, as rising exports are still overshadowed by a sharp increase in imports. According to data from the first eight months of fiscal year 2082/83 (up to Falgun), the country’s total merchandise exports grew by 20.8 percent to reach Rs. 191.11 billion. While this growth appears encouraging on the surface, it marks a slowdown compared to the 57.2 percent surge recorded in the same period last year, indicating that export momentum is gradually weakening.

Export performance varied significantly across destinations. Shipments to India and other countries increased by 25.3 percent and 7.8 percent respectively, reflecting improved demand in traditional markets. However, exports to China declined sharply by 53.7 percent, highlighting Nepal’s continued struggle to diversify and sustain trade with its northern neighbor. This imbalance underscores Nepal’s heavy dependence on the Indian market, making its export sector vulnerable to regional economic fluctuations.

Product-wise, Nepal has seen increased exports of soybean oil, cardamom, palm oil, jute products, and instant noodles, which remain key contributors to export earnings. On the other hand, exports of zinc sheets, particle boards, tea, woolen carpets, and handicrafts have declined, suggesting weakening performance in traditional and value-added sectors. This shift indicates that Nepal’s export growth is still concentrated in limited, often low-value or re-export-based commodities rather than diversified industrial goods.

On the import side, the situation remains more concerning. Total imports increased by 12.5 percent to Rs. 1,289.25 billion during the review period. This continued rise in imports, although slightly higher than last year’s growth of 11.2 percent, reflects sustained domestic demand and dependency on foreign goods. Imports from India, China, and other countries rose by 5.1 percent, 21.2 percent, and 26.0 percent respectively, showing a notable surge in imports from China and third countries.

In terms of commodities, imports of crude soybean oil, chemical fertilizers, silver, transportation equipment, vehicles and spare parts, and telecommunications equipment have increased significantly. These imports are largely tied to industrial needs and consumption demand. Meanwhile, imports of edible oil, hot-rolled sheets, garlic, pulses, and MS billets have declined, possibly due to changes in domestic demand, policy measures, or price fluctuations in international markets.

Despite export growth, Nepal’s trade deficit has widened further. The total trade deficit increased by 11.2 percent to Rs. 1,098.14 billion in the first eight months of the fiscal year. This reflects a persistent structural imbalance, where imports continue to far exceed exports. However, there is a slight improvement in the export-import ratio, which rose to 14.8 percent from 13.8 percent in the previous year, indicating marginal progress in narrowing the gap.

Additionally, goods worth Rs. 120.41 billion were imported using convertible foreign currency during the review period, slightly higher than Rs. 119.49 billion recorded last year. This indicates continued reliance on foreign currency reserves for trade settlement beyond the Indian rupee mechanism, adding pressure on external liquidity despite currently strong reserve levels.

Overall, Nepal’s foreign trade scenario presents a mixed picture. While export growth offers some optimism, the widening trade deficit and heavy reliance on imports highlight deep-rooted structural challenges. Sustained improvement will require strategic efforts to diversify exports, strengthen domestic production, and reduce import dependency, particularly in high-value sectors.