Disruption narrows trade deficit, builds inflationary pressure

Kathmandu, November 20

The country’s trade deficit narrowed by 33 per cent to Rs 113.68 billion in the first quarter of the current fiscal year as imports slumped due to trade disruption at Nepal-India border points.

Imports fell by a whopping 31 per cent to Rs 130.49 billion in the three-month period between mid-July and mid-October as many merchandise goods, including petroleum products, could not enter the country ‘due to protests that began in the Tarai from August 13 and undeclared blockade imposed by India from the fourth week of September’, says the preliminary draft of the report titled ‘Impact of Undeclared Blockade on Nepal’s Economy’ prepared by Nepal Rastra Bank.

Although these disruptions also caused exports to fall by around 25 per cent to Rs 16.81 billion, a bigger drop in imports caused the trade gap to narrow significantly.

In the three-month period, imports from India dropped by 35.4 per cent as a huge amount of petroleum products, MS billet, food items, cement and medicines could not enter Nepal.

Such a decline in imports and continued rise in remittance income has given a boost to the country’s foreign exchange reserve and further strengthened the balance of payments (BoP), says the draft report.

“However, stronger current account and BoP position will not aid much because disruption in supply of petroleum products, essential drugs, chemical fertilisers and raw materials is not in favour of the economy,” adds the report.

The report also says the trade disruption has started building inflationary pressure, which is not good for the economy as it reduces the value of money.

Inflation stood at 6.9 per cent in the first month of the current fiscal year. It spiked to 7.2 per cent in the second month and stood at 8.3 per cent in the third month of the current fiscal year.

The impact of trade disruption has been worst on pulses, prices of which have gone up by 34.6 per cent.

“If the supply situation does not improve, prices of edible oil and rice will also come under pressure,” adds the report.