TRADE DEFICIT Ballooming Crisis

As Nepal trade deficit balloons to Rs 398.76 billion, a new economic crisis is looming

Jan. 22, 2018, 12:59 p.m. Published in Magazine Issue: VOL.11, No.13, January 19, 2018 (Magh 05, 2074) Online Register Number: DOI 584/074-75

As the remittance is gradually receding and import is increasing with huge trade imbalances, Nepal’s economy is heading towards a new phase of crisis. Nepal’s dependence on import is so high that there is no product on which Nepal has a strong base.

Forget about luxury vehicles, cars, two-wheelers and cosmetic goods, Nepal has been importing even foodstuff and vegetables, which Nepal can grow on its own. Nepal’s annual import of petroleum products also has also increased substantially. However, Nepal’s import is gradually declining given the lack of labor working in the agriculture sector.

The recently released data show that the country’s trade deficit widened to Rs 398.76 billion in the first five months of the ongoing fiscal, as the import bill of the country surged by 13 per cent to reach Rs 432.48 billion, whereas exports slowed to a crawl.

According to data unveiled by the Department of Customs, in the review period, the country imported petroleum products worth Rs 61.20 billion, iron and steel worth Rs 43.09 billion, machinery parts worth Rs 40.95 billion, vehicles worth Rs 35.56 billion and electric equipment worth Rs 29.66 billion.

The major export commodities were coffee and tea (worth Rs 3.71 billion), products made of staple fibres (Rs 3.19 billion), carpets (Rs 2.97 billion), apparels — ready-made garments (Rs 2.84 billion) — and iron/steel (Rs 1.96 billion).

In total, the country exported goods worth Rs 33.72 billion in the first five months of the current fiscal, which is slightly better compared to Rs 30.61 billion in the corresponding period of the previous fiscal.

This is not the first time. The country’s trade deficit has been ballooning every passing year since last 10 years. The trade deficit of the first five months of this fiscal is more than the total annual import bill of the country eight years ago.

Eight years ago in 2009-10, Nepal exports were at Rs 59.39 billion and imports at Rs. 368.38 billion. However, in the five months of the current year, Nepal’s export was merely Rs. 33.72 billion while it imported goods worth of Rs. 432.48 billion. According to DoC, in fiscal 2009-10, the total annual import was worth Rs 368.38 billion.

Experts have said that Nepal’s energy shortfall is the major reason behind the trade deficit as the import bill of petroleum products surged by 55 per cent to Rs 61.20 billion in the first five months of this fiscal compared to Rs 39.45 billion in the corresponding period of the previous fiscal.

Although Nepal is projected as a rich country in hydropower, Nepal is importing around 372 megawatts of electricity from India, which is not included in the goods trade. Nepal’s electricity import bill from India is around Rs 15 billion per annum.

Given the current trends of demand of the products, there is no sign that Nepal’s trade will go in its favor anytime soon. For example, a majority of imports and exports took place with India, with the share of imports and exports with the southern neighbor in the review period standing at 65.3 per cent and 53.8 per cent, respectively. Except United States of America, Nepal has a huge trade deficit with all other major trading partners like China, Europe, Turkey and Argentina.

Although Nepal used to have favorable trade with Bangladesh until a few years ago, Nepal’s trade with Bangladesh is also not favorable now. Similar is the case with other countries including Bhutan.

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