Trade and Debt

AGRICULTURE TRADE AND DEBT TRADE AND DEBT

For the first nine months of the Fiscal Year (FY) 2020-21, trade deficit increased by 12.5%, indicating that trade activities had started picking up. However, with the spike in the Covid-19 cases and lockdown being imposed in a majority of the country, trade activities have come to a halt once again. The international borders have been closed, exposing entrepreneurs and exporters to tough times. Transportation charges have also increased, pushing up the rate of exports.

Foreign Trade Scenario: Table 1 reflects the trade scenario of the third quarter (Q3) of the FY 2020/21. In the review period, merchandise exports increased by 20.2% to NPR 94.77 billion (USD 787.12 million) as compared to a 12.9% increase in the same period of the previous year. In terms of destination, exports to India witnessed a growth of 23.5% and exports to other countries also grew by 14.5%. However, exports to China experienced a considerable decline of 27.3%. Similarly in the first nine months of the FY 2020/21, merchandise imports increased by 13.1% to NPR 1,111.40 billion (USD 9.23 billion) as against a decline of 7.5% a year ago. Destinationwise, imports from China and India increased by 7.7% and 20.3%, whereas imports from other countries fell by 2.3%.

Table 1: Foreign Trade Statistics of Q3 in the fiscal year 2020/21 (NPR in millions)

Heading 2018/19

Annual

Nine Months 2019/20 2020/21P Percent Change

Annual Nine Months Nine Months 2019/ 20 2020/ 21

Total Exports 97,109.5 69,822.3 97,709.1 78,818.7 94,767.1 12.9 20.2

To India

To China 62,731.8 44,186.2 70,108.9 55,423.8 68,435.8 25.4 23.5

2,109.8 1,523.3 1,191.2 1,095.7 796.4 -28.1 -27.3

To Other Countries 32,267.9 24,112.7 26,409.0 22,299.2 25,534.9 -7.5 14.5

Total Imports 1,418,535.3 1,061,633.7 1,196,799.1 982,534.8 1,111,395.5 -7.5 13.1

From India 917,922.2 686,869.3 735,294.8 602,615.1 724,946.3 -12.3 20.3

From China 205,518.6 153,974.2 181,920.3 152,384.5 164,133.6 -1.0 7.7

From Other Countries 295,094.5 220,790.2 279,583.9 227,535.3 222,315.5 3.1 -2.3

Total Trade balance -1,321,425.8 -991,811.4 -1,099,089.9 -903,716.2 -1,016,628.3 -8.9 12.5

With India -855190.4 -642,683.0 -665,185.9 -547,191.2 -656,510.6 -14.9 20.0

With China -203408.8 -152,451.0 -180,729.1 -151,288.8 -163,337.2 -0.8 8.0

With Other Countries -262826.6 -196,677.4 -253,174.9 -205,236.1 -196,780.6 4.4 -4.1

Total Foreign Trade 1515644.9 1,131,456.0 1,294,508.2 1,061,353.5 1,206,162.6 -6.2 13.6

With India 980654.0 731,055.5 805,403.7 658,038.9 793,382.1 -10.0 20.6

With China 207628.4 155,497.5 183,111.5 153,480.2 164,930.0 -1.3 7.5 With Other Countries 327,362.4 2449,02.9 305,993.0 249,834.4 247,850.5 2.0 -0.8

Top Exports and Imports: During the first nine months of FY 2020/21, exports of some items such as soyabean oil, jute, cardamom, polyester yarn and threads, pashmina, etc. increased, whereas exports of items such as palm oil, pulses, zinc sheet, wire, cattle feed, etc. decreased. Likewise, imports of items such as transport equipment and parts, crude soyabean oil, M.S. billet, rice, telecommunication equipment and parts, etc. increased, whereas imports of aircraft spare parts, petroleum products, crude palm oil, video television and parts, silver, etc. decreased in Q3.

Trade Deficit: The total trade deficit increased by 12.5% to NPR 1,016.63 billion (USD 8.43 billion) in nine months of FY 2020/21. Such deficit had decreased by 8.8% in the same period of the previous year. The export-import ratio increased to 8.5% in the review period from 8.0% in the same period of the previous year.

Source: Nepal Rastra Bank. Current Macroeconomic Situation (based on annual data of FY 2020/21)

Balance of Payment: In the Q3 results of the FY 2020/21, the current account registered a deficit of NPR 207.41 billion (USD 1.72 billion) as compared to a deficit of NPR 126.09 billion (USD 1.04 billion) in the same period of the previous year. The Balance of Payment (BOP) recorded a surplus of NPR 42.54 billion (USD 353.32 million) as compared to a surplus of NPR 36.61 billion (USD 304.06 million) in the previous year.

Figure 6: Foreign Trade Scenario for Quarter 3 of FY 2020-21

Source: Nepal Rastra Bank. Current Macroeconomic Situation

Nepali felt products witness a

surge of 61.97%: Nepal exported felt products worth NPR 2.74 billion (USD 22.76 million) in the first eight months of the current FY 2020-21 compared to NPR 1.69 billion (USD 14.04 million) in the same period last year. While the lockdown imposed from 29 April 2021 might break the chain of sharp rise of 61.97%, felt exports in the first eight months have already surpassed total exports for the last fiscal year that was worth NPR 2.15 billion (USD 17.86 million). According to the Trade and Export Promotion Centre (TEPC), major export destinations for felt products have been the United States (US), European countries, followed by Japan and Canada.91

Nepal begins process to register five species of large cardamom grown

in the country: Nepal has formally begun paving a way for Nepal to claim ownership and patent the species of large cardamom internationally by initiating the process of identifying and registering five indigenous species of large cardamom. According to Large Cardamom Development Center, Nepal is home to 14 different varieties of cardamom. Among them, Nepal Ramshai (grown at 1,500m–2,000m above sea level), Golshai (1,200m–1,600m), Dammershai (700m–1,200m), Jirmale (600m–1,200m) and Varlangae (1,500m–2,000m) are currently in the registration process.

Nepal exported large cardamom worth NPR 3.81 billion (USD 31.64 million) in the first six months of the current fiscal year 2020-21; the export stood at NPR 2.51 billion (USD 20.85 million) in the same period last year.92

Government rolls back quota permits on import of peppercorns,

peas, dates, and betel nuts: The Ministry of Industry, Commerce and Supplies has scrapped quota permits to import peppercorns, peas, dates, and betel nuts on March 22, 2021. Domestic traders could import 15,000 tons of betel nuts and peppercorns and 5,000 tons of dates annually as per the partial lift on import ban. The government had completely banned the import since March 2020 citing unfair practices and smuggling charges.93

Nepali traders continue to suffer due to closure of northern border:

According to the Trade and Export Promotion Centre, imports from China dropped by 12.4% year-on-year to NPR 116.12 billion (USD 964.45 million) in the first seven months of the current FY 2020-21. The customs office collected only NPR 2.38 billion (USD 19.77 million) in the period largely missing its target of NPR 11.33 billion (USD 94.10 million). Imports from northern border have suffered as Chinese authorities have not reopened the border or resumed issuing visas. While most traders have resorted to continuing imports through freight via India, it came at an additional cost of around NPR 1.2 million (USD 9.97 thousand) and significant time delay. The goods ordered from China arrive in Nepal within two weeks by truck overland from the northern border while it takes two months to arrive by sea freight.94

Import resumption of luxury

vehicles: After a gap of nearly a year, the government has reauthorized the import of luxury vehicles that have a value of more than add NPR 6 million (USD 50,000). With a policy of allowing import of only essential goods, the government had halted import of expensive vehicles last year in order to prevent the depletion of the nation's foreign exchange reserves.95

OUTLOOK

As the country faces the brunt of the second wave of the Covid-19 pandemic, trade activities have come to a halt once again. However, despite the pandemic, exports of pashmina and felt products have increased. This indicates the demand for such products as they are of superior quality; thus, the country should focus on improving its production capacity. Furthermore, Nepal should strive towards forming and enhancing trade relations with different nations with the aim of reducing dependency on its giant neighbors, India and China. The pandemic has taught us many lessons including how having an open border can be a great support system as people can cross such borders to eke out daily livelihoods. It is important for the policymakers and diplomats in the capital cities to understand how borders are integral to the lives of many millions of people on either side of the border.96