International trade is essential for a country’s economic development and modernization, driven by the dynamics of imports and exports. This review comprehensively examines Nepal’s trade deficit and its impact on the national economy. Nepal’s trade landscape is characterized by a significant imbalance, with imports consistently surpassing exports, as evidenced by an import-to-export ratio of 10.26 in the fiscal year 2022/23. This trade deficit has profound implications for national income, Gross Domestic Product (GDP) growth, inflation rates, and foreign exchange reserves. This review identifies key factors contributing to the trade deficit, including geographical constraints, limited export diversification, heavy reliance on imports, infrastructural deficiencies, insufficient promotion and advertisement, political instability, low productivity, and dependency on remittances. This study underscores the critical need for export diversification as a strategy for mitigating trade deficits. Developing sectors with high potential such as tourism, information technology, hydropower, and organic farming are essential. Additionally, improving the quality and value addition of exported goods, expanding market access through proactive trade diplomacy, and supporting small and medium enterprises are highlighted as necessary measures. This study also emphasizes the importance of substantial investments in infrastructure, education, and skill development to enhance productivity and competitiveness. Promoting a national brand and leveraging digital marketing platforms can boost Nepal’s export profile. Sound monetary policies and a stable economic environment are crucial for addressing the adverse effects of exchange rate volatility and inflation. Political stability and a conducive business environment are vital to fostering long-term economic growth. The effective utilization of remittances through productive investments and reducing dependency on external aid are pivotal for achieving sustainable development. Through coordinated efforts across various sectors, Nepal can work towards reducing its trade deficit, enhancing economic stability, and achieving sustainable economic growth.
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