Growing Trade Deficit

Nepal continues to incur huge deficit year after year with majority of its trade partners, and the loss with India and China is alarming. With poor performance in export sector, the country’s trade deficit soared by over 30 per cent to Rs. 909 billion during the last fiscal year. According to records released by the Ministry of Commerce, the trade deficit with India crossed Rs. 600 billion while the volume of trade deficit with China reached Rs. 128 billion in the last fiscal year. The deficit with third countries amounted to Rs. 182 billion. The ratio of export and import last year stood at 1:13.3, meaning the total import is over 13 times higher than total export; this ratio was 1:11 a year earlier. The share of Nepal’s total trade with India stood at 65 per cent compared to 12.3 per cent with China and 22.7 per cent with other countries. The share of import from India stood at 65.5 per cent followed by only 13.1 per cent with China and 21.4 per cent with other nations. Likewise, the share of Nepal’s export to India amounted 58 per cent but the export to China stood at a meagre 2.3 per cent while the export to third countries amounted to nearly 40 per cent. Why is Nepal’s trade deficit always widening? Obviously because the country has failed to tap its export potential despite being located between two fastest growing economies of the world - India and China - with nearly 40 per cent of the global population living there. On the other hand, its import of petroleum, vehicles and consumer products is increasing like anything. This year petroleum import increased by 88 per cent while the import of vehicles and motor parts increased by 30.5 per cent that naturally added up to a high import figure while the export grew only marginally. In fact, the export of key export items like carpet, readymade garments and lentils dropped by almost 10 per cent in the last fiscal year.
Evidently export is a key component of international trade that plays a crucial role in maintaining balance of payments of a country and earning foreign currency. Unfortunately, Nepal has not yet been able to build industry and augment export; it is largely dependent on remittances sent home by workers overseas while the abundant hydropower and tourism potential remain unexploited. The insignificant export that it makes is based largely on labour intensive items like handicrafts, carpets, and other textiles, felt products and indigenous artefacts. Another characteristic of its export is little value addition; it exports raw hide, ginger, cardamom and other agro products. The poor show in export trade is a result of inability to build industry that could not only generate employment for increasing number of youths who are compelled to leave home in search of jobs abroad but also reduce the growing trade deficit. The political leadership and successive governments before and after People’s Movement II in 2006 have maintained that the country has completed political revolution and now it is time for economic revolution for the prosperity of the country and countrymen. Ironically, Nepal’s economic status continues to slide with inability on part of the political parties and short-lived governments to cash in on natural and human resources for the transformation of the country. It is no mean challenge for them to build industries and diversify export so that the soaring trade deficit gradually declines and the country has a favourable balance of payment. Now that local elections have been held under the federal setup, let’s hope the political atmosphere will be conducive for economic progress with the development of agriculture, industry as well as service sector.

 

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