Export vs Import Growth Gap: Can Nepal Narrow the Trade Deficit?

Nepal’s external trade data from FY 2082/83 (2025/26) shows encouraging signs of export revival, but the sheer scale of imports means the trade deficit remains entrenched. Exports nearly doubled by 95.7% year-on-year in mid-August 2082/83, reaching Rs. 23.9 billion. This follows an 81.8% surge in FY 2024/25, reversing years of decline. In contrast, imports grew by a more modest 11.4% year-on-year in mid-August 2082/83, after rising 13.3% in FY 2024/25. Despite this slower pace, imports still totaled Rs. 143 billion by mid-August—six times larger than exports.

The gap highlights Nepal’s structural challenge. While export growth is accelerating, the absolute size of the import bill dwarfs export earnings, ensuring that the trade deficit remains wide. Nepal relies heavily on imports of petroleum products, vehicles, machinery, electronics, and industrial raw materials—goods that cannot be easily substituted in the short term. Meanwhile, exports remain concentrated in low-value items such as garments, carpets, tea, and handicrafts, alongside emerging contributions from hydropower.

The sustainability of narrowing the deficit depends on two factors:

1. Export diversification and value addition – Hydropower exports to India and potential IT and agro-processing sectors can shift Nepal’s export structure beyond traditional items. Without such diversification, high growth rates may not be sustained.

2. Import composition – If import growth continues to be dominated by consumer and luxury goods, the deficit will persist. But if imports increasingly reflect capital goods and machinery for investment, they could support long-term productive capacity, indirectly helping to narrow the gap.

Currently, the trade deficit is being masked by strong remittance inflows (Rs. 177 billion by mid-August 2082/83) and a resulting current account surplus (Rs. 78.1 billion). This means Nepal’s external stability is secure in the short run. However, unless domestic production strengthens and exports expand into higher-value sectors, the export–import gap will remain the defining feature of Nepal’s trade balance.