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Trade deficit up, export share in GDP down in Nepal

Publication Date : 24-04-2012

 

Eight years after Nepal’s accession to the World Trade Organisation (WTO), the country’s trade deficit has increased four folds and the share of export in GDP decreased to 5 per cent from 10 per cent.

After 15 years of hard work, Nepal had become a member of the global trade body on April 23, 2004.

Accession to the WTO was supposed to expand Nepal’s international trade and its trade competitiveness. However, in these eight years, exports of major items have undergone sharp decline, while imports rose quickly, thereby steadily increasing the trade deficit.

Between 2003-04 and 2010-11, the value of Nepal’s total imports almost tripled—from Rs 133 billion to Rs 388 billion. In the same period, Nepal’s exports rose from Rs 55 billion to Rs 69 billion—a 25 per cent increase.

There has also been a change in the composition of Nepal’s export basket. Many traditional Nepali exports lost market share. For instance, between 2004 and 2008, the export value of honey declined by 27 per cent per year on an average. Likewise, with the scrapping of the Agreement on Textiles and Clothing in 2005, the share of clothing exports in total exports fell rapidly.

The World Trade Report 2011 has ranked Nepal 123rd among the world merchandise exporters and 103rd among service trade exporters. Trade experts attribute this fall to eroding supply side capacity of Nepal. “Nepal’s weak export performance is also due to supply-side constraints,” states the WTO Trade Policy Review on Nepal.

Trade Expert Ratnakar Adhikary said supply side constraints like political instability, low connectivity, power crisis and problematic labour relation, among others, are plying a crucial role in eroding our capacity. “Although various trading partners are still providing us preferential market access, we have not been able to overcome non-tariff measures in those countries,” he said.

The review suggests that Nepal must address its supply side constraints and overcome other problems, including high transit costs, to realise the full potential of international trade.

By getting into the WTO, Nepal was expected to diversify its exportable items and trading partners. However, this hasn’t happened. “Nepal’s merchandise exports have been rather unstable and weak. Its export basket has narrowed, and its export markets are concentrated in a few countries, making exports susceptible to global economic volatility.”

As in 2004, India is still by far Nepal’s biggest trade partner. Exports to India accounted for 52 per cent of the total trade in

2003, which has now increased to 65 per cent. Experts attribute this reliance in India to geographical proximity and pegged currency. “Moreover, these days we importing such goods from India which we used to import from other countries earlier,” said Adhikari. “Earlier, we used to import vehicles from Korea and Japan, but the vehicles are now produced in India.”

Although Nepal’s trade with India expanded, exports to the United States have fallen, due to a sharp decline of Nepalese readymade garment exports following the scrapping of the Agreement on Textiles and Clothing. On the other hand, Nepal’s exports to some SAARC countries, mainly Bangladesh and Bhutan, have increased rapidly.

Imports from the European Union—Nepal’s traditional trade partner—have declined.

Although Nepal’s traditional exports performed poorly, exports of some new goods have emerged strong. Exports of iron and steel as well as textiles have increased rapidly. Other rapidly increasing export products include tea, ginger, instant noodles, medicinal herbs, large cardamom, and wool products.

 

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