Imports of luxury goods are up sharply, pointing to a massive boom in consumption and burgeoning middle class, which is bad for the economy as the trade deficit has widened due to such spending, the government said Sunday.

Luxury goods imports hit Rs41 billion during the first five months of the fiscal year which began mid-July, compared to total export earnings of Rs37.5 billion. According to the Ministry of Industry, Commerce and Supplies, luxury goods imports account for 7 percent of the country’s total imports valued at Rs607 billion.

Imports of high-end cars, apparels and electrical equipments, among others, surged notably from mid-July to mid-December. The country’s consumer goods import bill, mainly for farm products, amounted to Rs137 billion. Farm products accounted for 20 percent of the total trade deficit of Rs569.5 billion, according to the ministry.

Commerce Secretary Chandra Kumar Ghimire said Sunday the government needed to adopt suitable policy measures to cut spending on luxury goods to check the yawning trade deficit. “There is a need to control imports of agricultural products by providing more incentives to the production of farm items,” said Ghimire, expressing concern over soaring imports of agricultural products which reached Rs196 billion in the last fiscal year.

Nepal’s merchandise trade deficit is increasing at an alarming rate. The high import bill combined with a slow rise in remittance inflow has increased the current account deficit, thus putting pressure on the country’s foreign currency reserves.

As per the ministry, Nepal imported industrial raw materials worth Rs208 billion over the period. “Under-utilisation of local resources with industrialists depending overly on foreign raw materials has led to a jump in their imports,” said Ghimire, giving an example of clinker and cement imports which were worth Rs7.5 billion and Rs501 million

respectively. Capital equipment imports amounted to Rs122 billion while spending on oil and coal imports totalled Rs99 billion. According to Ghimire, energy accounted for 23 percent of the trade deficit.

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The ministry attributed the soaring trade deficit to heavy spending of remittance money on luxury items, increasing dependency on fossil fuels, sluggish agricultural and industrial growth, and post-earthquake reconstruction. Nepal’s farm sector produces a surplus of only 15 percent that is sold in the domestic market, according to the ministry’s statistics.

The ministry wants to impose an anti-dumping policy to check imports of substandard goods and increase exposure of domestic products in global, regional

and sub-regional value chains to help increase exports to minimise the expanding export-import gap.

Presenting a paper, Posh Raj Pandey, executive chairman of South Asia Watch on Trade, Economics and Environment, stressed the need to simplify the inflow of earnings from service exports. “The production sector is focused on manufacturing intermediary goods and faces significant non-tariff barriers due to its low competitiveness, so the government can focus on boosting the service business to address the dismal foreign currency situation,” Pandey said.