High interest rates and economic recession affect Nepal’s import trends

KATHMANDU: Nepal’s foreign trade has seen a notable 5.32 percent decline in the first two months of the current fiscal year, with reductions in both imports and exports.

Data maintained by the Department of Customs (DoC) indicates that Nepal’s trade volume, spanning from mid-July to mid-September, amounted to Rs 286.19 billion, marking a decrease from Rs 302.28 billion for the same period last year. The decline in overall trade activity has been attributed to the government’s revision of its taxation policy on imported goods amid the ongoing economic slowdown.

The DoC’s records reveal that the country’s imports decreased by 5.06 percent, totaling Rs 259.74 billion during this period. Similarly, export earnings also experienced a decline of 7.79 percent, reaching Rs 26.44 billion.

Traders have pointed out that the drop in imports can be attributed to high bank interest rates and a significant reduction in people’s income due to the economic recession. This substantial decline in imports has had a negative impact on the government’s revenue collection.

Financial Comptroller General Office (FCGO) records show that revenue collection amounted to Rs 141.07 billion, down from Rs 154.23 billion in the corresponding period. The government managed to collect only 76 percent of the targeted customs revenue.

Moreover, Nepal’s exports have been affected by a sharp decline in cross-border trade of edible oils. This year, the government revised its policy on subsidizing customs duties for raw materials such as palm oil, soybean oil, and sunflower oil. Additionally, Nepali exporters have faced challenges as India adopted a more flexible policy regarding its imported edible oils from countries other than Nepal.

As a result of the significant decrease in import volume, Nepal has seen its trade deficit shrink by 4.74 percent. During this review period, the negative trade balance decreased from Rs 244.91 billion to Rs 233.30 billion.