Foreign Trade: Swelling Gap

As Nepal’s foreign trade goes up by 19 percent, Trade and Export Promotion Cener’s (TEPC) recent data reveal that import of food products, including rice, consumed a huge amount of money

May 23, 2014, 5:45 p.m. Published in Magazine Issue: Vol: 07 No. -22 May. 23- 2014 (Jestha 9, 2071)

If Nepal’s current foreign trade deficit continues, Nepal can go bankrupt any time. With the import of over Rs. 35 billion, Nepal’s export is nearly Rs. 200 billion. Nepal’s import of petroleum products alone reaches over Rs. 100 billion.

As there is no immediate sign to increase Nepal’s exports, the economy has to rely on human exports to contain the swelling trade deficit. The flow of remittance is the key factor in Nepal’s Balance of Payment.   

According to the data released by TEPC, the total foreign trade increased by 19.1 percent in the nine months of the current fiscal year 2070-71 BS and reached Rs. 592.39 billion. Not only Petroleum products and vehicles, Nepal is net importer of food products. Till a decade ago, Nepal was a net food exporter country. However, Nepal is importing everything from rice to vegetables and oil now.

TEPC said that the contribution of export and import in the total trade was 11.5 percent and 88.5 per cent respectively. Total export increased to Rs.68.20 billion with an increase of 19.9 percent and total import by 19 percent to Rs.524.19 billion as compared to the same period last FY.

At a time when Nepal’s industries are closing down one and after another due to shortage of electricity and growing trade disputes, Nepal is gradually losing trade competitiveness in the global market. Even Nepal’s carpet and garment products are losing the competitiveness. Despite the immense geographical advantages, Nepal is yet to produce the off-season vegetables through commercialization of agriculture.

Although there was some improvement in export of traditional items like carpet and garment, the total trade deficit increased by 18.8 percent reaching Rs.455.99 billion, said Director of the Centre Suyash Khanal.

Other exports were woolen carpet, garment, pulse, polyester and yarn, textile, iron and steel production, handicrafts, noodles, toothpaste, cardamom, tea, ginger, hand paper, leather, pashmina and herbs.

Nepal’s current trade deficit with India is growing with almost Rs.100 billion. Similarly, Nepal’s trade with another neighbor China is also not in Nepal’s favor. Nepal’s major countries for export trade were India, USA, Germany, China, Bangladesh, UK, Afghanistan, France, Turkey, Japan, Italy, Canada, Australia and Thailand.

As the flow of remittances continues to go up, Nepalese society is turning into a consumptive society. With the demand of luxury goods higher, Nepal’s spending on imports goes up.  Nepal’s import of iron, steel and production items increased by 12.1 percent to reach Rs. 47.25 billion and petroleum by 22 percent and reached Rs.99.42 billion.

Import of transport vehicles and parts increased by 21.4 and electric and electronic goods by 17.4 percent and medicines by 3.6 percent. During the period, gold worth Rs. 19.59 billion, chemical fertilizer worth Rs. 13.12 billion and aircraft and aircraft parts of Rs.1.68 billion were imported.

Although there is possibility to explore the market to narrow the trade gaps, the government is yet to make any substantial efforts to do so. Nepal can increase its share of export to major countries like India, China, UAE, Indonesia, Thailand, Brazil, Argentina, Germany, Malaysia, USA, Saudi Arabia, Japan, South Korea and UK.

Given the present rate of trade gap, Nepal cannot sustain it for a long period of time.  Nepal needs to search a market for Nepalese products with comparative advantages and increase the local production so that Nepal can save money used to import agriculture products.

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