Trade Deficit Narrows by 2.5%: Nepal’s Imports Grow 11.4% While Exports Soar

Nepal’s trade performance in FY 2025/26 presents a mixed picture of strong export recovery and persistent import dependency. On the one hand, exports posted their sharpest growth in a decade, surging by 95.7 percent to Rs. 23.93 billion. This dramatic rebound was fueled almost entirely by exports to India, which jumped by 156.7 percent to Rs. 19.45 billion, lifting India’s share of Nepal’s exports to more than 81 percent. In contrast, exports to China collapsed by 65.2 percent, falling to just Rs. 54.8 million, while shipments to other countries declined marginally by 1.4 percent to Rs. 4.42 billion. This imbalance shows how heavily Nepal’s export sector is tied to the Indian market, leaving it vulnerable to demand and policy changes across the southern border.

On the import side, demand remained strong, with total imports rising by 11.4 percent to Rs. 1.43 trillion. Imports from India, which account for the largest share, grew by 7.5 percent to Rs. 835.4 billion. Imports from China, however, grew faster at 14.1 percent to Rs. 280 billion, reflecting Nepal’s dependence on Chinese manufactured goods, technology, and industrial supplies. Imports from other countries jumped by 20.5 percent to Rs. 315 billion, particularly driven by petroleum, machinery, and other essential raw materials. This structure means that Nepal’s import basket is not only rising in value but also diversifying, adding more pressure to the country’s balance of payments.

The trade deficit remained massive at Rs. -1.19 trillion, but the surge in exports helped narrow the gap by 2.5 percent compared to the previous year. The deficit with India declined by 8.6 percent, mainly due to electricity and manufacturing exports, while the deficit with China worsened by 14.6 percent because imports rose while exports collapsed. Similarly, the trade gap with other countries expanded by 25 percent, as demand for petroleum, equipment, and industrial products outpaced limited export growth. Although the export-to-import ratio improved from 9.5 percent to 16.7 percent, showing some progress, it still reflects Nepal’s overwhelming reliance on imports and limited ability to finance them through export earnings.

In summary, Nepal’s foreign trade in 2025/26 demonstrated remarkable export growth but also highlighted structural weaknesses. The heavy dependence on India for export earnings, the widening deficit with China, and the rising cost of imports from third countries point to long-term vulnerabilities. While the narrowing of the trade deficit by 2.5 percent is a positive signal, Nepal still faces the challenge of diversifying its export markets, boosting industrial production, and reducing its dependence on imports to achieve sustainable trade stability.