Offsetting Trade Deficit

In the first eight months of the current Fiscal Year (FY), Nepal’s trade deficit has reached nearly Rs 1.1 trillion. During the same period, the country imported rice and paddy worth over Rs 29 billion alone. Why is the trade deficit widening? These figures offer a clear answer: even goods that could be produced domestically are being imported. The deficit can only be reduced if Nepal boosts exports of domestic products while limiting imports to essential items. Yet, there is little evidence of effective measures to restore trade balance. Data released by the Department of Customs a few days ago show that the trade deficit has climbed to around Rs 1.1 trillion—Rs 111 billion higher than in the same period last fiscal year. This represents a significant burden for an economy like Nepal’s. The country continues to rely heavily on imports of food grains, vegetables, fruits and industrial raw materials. In contrast, exports in the review period totalled Rs 191.11 billion. Although trade showed early signs of growth this FY, momentum has weakened in recent months. Even major economies are currently facing headwinds, which has dampened demand for Nepali goods and further widened the deficit. India, Nepal’s largest trading partner, is also experiencing an economic slowdown, contributing to declining exports. A particularly worrying trend is the dominance of petroleum products in imports. Diesel imports alone have reached Rs 82 billion. Gold imports stand at Rs 23 billion, crude soybean oil at Rs 66 billion, petrol at Rs 43 billion, and gas at Rs 37 billion.

Nepal’s heavy dependence on imported petroleum—resources it cannot produce domestically—is a key driver of the widening deficit. At the same time, the country is importing agricultural goods that could be produced at home. Just as Nepal has achieved notable success in poultry production, similar gains are possible in other agricultural sectors. Expanding domestic production and consumption would significantly ease the trade imbalance. Given Nepal’s diverse geography and climate, there is considerable potential to export fruits, vegetables and grains, generating substantial income. There is also untapped potential in niche products. Gulf countries, which lack agricultural capacity, could serve as promising markets. Nepal produces unique goods such as Chhurpi (Yak cheese), which has found use even in Western markets as dog chew treats. While Nepal may struggle to compete globally in mass-produced goods, it can carve out markets for distinctive, high-value products. Processed items such as potato chips, dried apples and ginger-based products also offer export potential. Leveraging local resources in this way can deliver meaningful economic gains.

Reducing dependence on petroleum imports will require a shift towards electric mobility. Promoting electric vehicles and ensuring wider access to domestically generated electricity—for cooking and other household uses—can help lower import bills. Rather than exporting electricity at low prices, Nepal should prioritise domestic consumption. Expanding production and use of energy and food within the country could have a transformative impact. At the same time, imports must be managed more prudently. A free market does not preclude the protection and promotion of domestic industries. Nepal should also pursue targeted export strategies for countries with which it runs persistent trade deficits. Coordinated efforts with partner governments could help expand market access for Nepali goods and support greater self-reliance. With a significant share of the workforce migrating abroad, retaining labour and channeling it into productive sectors at home could strengthen export capacity. Reducing the trade deficit must be a national priority—and achieving it will require coherent, strategic action.