Trade deficit hits Rs 563b as imports rise

- POST REPORT, Kathmandu

Jul 18, 2014-

Nepal’s merchandise trade deficit surged 28.6 percent to Rs 563.97 billion in the first 11 months of fiscal 2013-14 as imports raced ahead of exports, said Nepal Rastra Bank (NRB). The figure is higher by Rs 125.3 billion compared to the same period in the previous fiscal.

According to NRB’s report on the macro-economic situation of the country, the massive surge in the trade deficit was due to a substantial increase in imports compared to exports. Exports rose 16.9 percent while imports jumped 27 percent over the review period.

The gap between exports and imports from India has also swollen during the period. Compared to the same period last year, the trade deficit with the southern neighbour has bloated by Rs 87.78 billion to Rs 377.08 billion.

With the widening trade deficit, the ratio of exports to imports also declined to 12.7 percent from 13.7 percent.

Trade expert Bijendra Man Shakya said lack of a government policy to boost exports to India was among the major factors for the ballooning trade deficit. “As trade with India accounts for a major share of Nepal’s foreign trade, the government should focus on promoting exports to India too besides third countries,” said Shakya. He stressed the need to provide cash incentives for exports to India too.

Currently, the government provides a 2 percent cash subsidy on exports to third countries while there is no incentive for traders selling goods to India. Nepal’s trade with India amounts to two-thirds of its total external trade.

Shakya also emphasized that competitive goods should be produced for import substitution. “Being part of a liberalised global trade, Nepal cannot directly restrict imports in the name of controlling them.”

Meanwhile, remittance inflows increased 26.4 percent to Rs 490.95 billion despite the soaring trade deficit. The jump in remittance among others has helped the country to maintain an adequate surplus in its balance of payments.

The surplus more than doubled to a record Rs 109.56 billion during the review period.

Similarly, the country’s foreign currency reserves grew 21.4 percent to Rs 647.64 billion as of mid-June this year. The foreign currency reserves was recorded at Rs 533.30 billion in mid-July 2013.

According to NRB, the current level of reserves is sufficient for financing merchandise and service imports of 9.8 months.

Meanwhile, inflation rose to 9.5 percent in mid-June. The rate of growth in the price index was 8.2 percent in the review period last year. The index of the food and beverage group climbed 12.2 percent while the index of the non-food and services group rose 7.0 percent during the review period.

Published: 19-07-2014 09:29

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