KATHMANDU, April 16: Nepal’s trading cost is 44 percent higher than those of the member countries of the South Asian Free Trade Area (SAFTA), according to a new government report that highlights structural challenges such as high dependency on remittance inflows and slow foreign direct investment (FDI).
Unveiling a study report entitled ‘Nepal Trade Policy Review 2025’ on Monday, the Ministry of Industry, Commerce and Supplies (MoICS) identified these barriers as critical obstacles to the government’s plan to elevate the country to middle-income status. The report estimates that the cost of logistics, excluding customs duties, stands at 30-35 percent of Nepal’s GDP.
According to the report, Nepal faces trading costs 38.2 percent higher than ASEAN countries and 70.8 percent higher than major economies such as China, the European Union, Japan, and the United States. Landlocked geography, expensive transportation and logistics, weak supply chains, and inadequate infrastructure are cited as the primary reasons behind the elevated costs.
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Nepal’s economy grew by just 2.7 percent last year. Despite positive growth in recent years, excluding the COVID-19 period, the economy has not expanded as rapidly as expected. Per capita income has increased to approximately $1,434, while the trade-to-GDP ratio has declined to about 41 percent.
The MoICS report emphasizes that Nepal’s economy is heavily dependent on remittances, which average 25 percent of GDP. “Although this has helped to fund the financial gap created by the trade deficit, it has posed a risk to long-term economic stability,” the report states.
While the government has introduced several policy reform measures that have supported economic recovery in recent years, challenges related to long-term production growth, boosting investment, and expanding exports remain.
Nepal’s merchandise exports have barely reached $1.15 billion, accounting for a very small share of total trade volume. Textiles, foodstuffs, and metal products are the main export items, with India dominating the export market. Major imports include fuel, machinery, iron and steel, and vehicles, with Nepal’s southern neighbor also holding dominance in these sectors.
Trade deficits persist in both goods and services. Key challenges include a lack of infrastructure, weak production capacity, and limited participation in global value chains. Remittances, however, continue to support the current account balance.
Amid slow progress in reaping benefits from cross-border trade, Nepal has also lagged behind in attracting foreign direct investment (FDI) as expected. Although the government has implemented reforms such as the Foreign Investment and Technology Transfer Act, the Industrial Enterprise Act, and the Automatic Route for FDI approval, there has been no significant increase in actual FDI realization.
Nepal is working to facilitate trade through transit agreements with India, China, and Bangladesh. Additionally, initiatives are underway to expand connectivity and reduce costs through regional frameworks such as SAFTA, BIMSTEC, BBIN, and SASEC.
The government has prioritized product and value chain development, export diversification, logistics infrastructure improvement, and market access expansion through its ‘Smooth Transition Strategy’. However, due to weak policy implementation, the expected achievements have not yet materialized, the MoICS report concludes.
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