STATUS AND TREND OF BALANCE OF TRADE IN NEPAL: IMPACT AND POSSIBLE POLICY GUIDELINES

Abstract

This paper explains the current state, historical pattern, potential root causes, and suggested solutions to Nepal’s trade deficit. As a result of globalization, Nepal’s foreign trade has been expanding quickly, but a fundamental issue with the country’s foreign trade balance is that import growth has been outpacing export growth. It results from Nepal’s trade sector’s incapacity to diversify its commerce in terms of nations and goods. A straightforward statistical method and exploratory data analysis using secondary sources of data served as the foundation for the investigation. The figures amply demonstrate a significant trade deficit, indicating that the international trade strategy requires rapid evaluation and improvement. Export, import, and trade balance yearly percentage changes for 2020–21 were found to be 44.43%, 28.66%, and 27.26%, respectively. The trade deficit expanded from FY 2020/21 to FY 2021/22 by NRs. 380 billion. The trade imbalance is having a detrimental effect on the nation’s GDP and economic expansion. The study also discovered that during FY 2021/22, the import-to-export ratio was 9.60. The trade imbalance in Nepal may be caused by factors like geography, political unpredictability, high production costs, lack of laboratories for quality assurance, lack of resources, etc. The main factors contributing to Nepal’s trade deficit can be addressed through competitive and improved human capital, commodity and market diversity, the creation of a solid legal framework and trustworthy trade act and policy, the offer of incentives for the promotion of export, etc. It is recommended that export-oriented industries have an adequate and appropriate investment program for import substitution and export promotion.