KATHMANDU, Nov 14: Nepal's trade deficit widened by 34.71 percent in the first three months of the current fiscal year, while the government fell short of its revenue collection target, adding to mounting pressure on the country's economy.
The widening gap between imports and exports, coupled with sluggish revenue mobilisation, has raised concerns over the government's ability to maintain fiscal stability. Continued dependence on imports and weaker-than-targeted revenue collection have further complicated economic management.
According to the Department of Customs, Nepal's trade deficit reached Rs 532.49 billion in the first three months of the current fiscal year. The deficit stood at Rs 395.30 billion during the corresponding period of the previous fiscal year, marking a year-on-year increase of 34.71 percent.
During the review period, Nepal imported goods worth Rs 646 billion, while exports amounted to Rs 114 billion. Imports increased by 38.18 percent compared to the same period last year, while exports grew by 57.03 percent. Despite the stronger export growth, the substantially larger volume of imports continued to widen the trade imbalance.
The government's revenue collection also remained below target. According to the Ministry of Finance, the government had set a revenue target of Rs 330 billion for the first three months of the current fiscal year but collected only Rs 301 billion, achieving 91.20 percent of the target.
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Revenue collection was thus Rs 29 billion short of the target. However, it increased by 19.90 percent compared to the corresponding period last fiscal year, the ministry said.
Import-based customs duties, Value-Added Tax (VAT) and excise duties account for a substantial share of government revenue. As a result, rising imports can boost revenue collection but also increase the country's trade deficit, stakeholders say.
The situation presents a twofold challenge for the economy: a growing outflow of foreign currency to finance imports and the government's inability to mobilise revenue in line with its targets.
Economists and stakeholders say Nepal needs to strengthen domestic production, identify and promote exportable goods, expand investment in productive sectors and broaden the tax base to address these structural weaknesses. Unless the country gradually shifts from an import-dependent revenue model towards one supported by domestic production and economic activity, both the trade imbalance and revenue mobilisation challenges are likely to persist.
The widening trade deficit and revenue shortfall in the opening months of the fiscal year have intensified concerns about the country's economic outlook.
According to Nepal Rastra Bank's financial statistics, imports grew by more than 38 percent, significantly outpacing export growth and further widening the trade imbalance.
Although improvements in customs administration were expected to strengthen revenue collection from imports, the gap between the government's target and actual collection has added pressure on public finances.
Stakeholders attribute the revenue shortfall partly to sluggish capital expenditure, weak domestic demand and the continued dominance of unproductive goods in the import basket.
Economist and former deputy governor of Nepal Rastra Bank Deependra Bahadur Chhetri said sluggish development spending, continued dependence on imports and the failure to mobilise revenue as expected had placed additional pressure on government finances.
Economists warn that a persistently high trade deficit could create long-term challenges for the country's foreign exchange reserves and current account balance. They say the government needs to take concrete measures to boost domestic production, regulate imports and broaden the revenue base.
Meanwhile, imports and exports increased during the review period despite disruptions to cross-border trade following devastating flood in the Bhotekoshi-Trishuli river corridor on August 26 and subsequent flooding in the Kaligandaki and Budhigandaki rivers. The floods led to the closure of the Rasuwagadhi and Korala customs points along the border with China.
Floods and landslides in the northern region also disrupted vehicular movement along major highways connecting Kathmandu. Despite these challenges, Nepal's total imports reached Rs 646 billion in the first three months of the current fiscal year, according to customs statistics.
