Nepal’s trade deficit surged by 87.44 per cent during the first five months of the current fiscal year that began in mid-July compared to the same period last fiscal. Nepal’s trade deficit widened to a startling Rs. 277.13 billion in the period under review, as against Rs. 140.03 billion in the same period a year ago, the latest macroeconomic report of the Nepal Rastra Bank showed. Widening trade deficit has been a matter of serious concern for Nepal.

The growing and continued imbalance between import and export has resulted in trade deficit for Nepal. Over the years import has skyrocketed. The situation of import and export can easily be understood when we think back to the days of economic blockade by India. Official statistics show Nepal’s trade dependence on India has increased in recent days. Nepal imported goods worth Rs. 195.15 billion from India, more than the double of last year’s figure.  Sluggish industrial activities are the disturbing features of Nepal’s economy. The industrial sector that used to contribute 18 per cent to the GDP a decade ago has squeezed to 15 per cent last year.

The main causes of widening trade deficit are dependency. Youths in Nepal are heavily dependent on foreign employment for income generation. These days due to foreign employment and migration to cities, fertile land has been ignored.

When agriculture is given less importance, sustainable development of a country is not possible.  Investing in non- productive fields like real estate is not fruitful for the country in the long run. Government should now invest in agriculture, agriculture based industries, and other industries should be established. Investing in industries can help decrease imports.

Banks are facing a liquidity crunch. Banks are in the state of halting loan disbursement and are promoting deposits by giving up to 12 percent interest on fixed deposits. The main reason behind the liquidity crunch is trade deficit. Government’s failure to use expenditure to resource mobilization is also a reason.  Due to this the government accumulated a cash balance of Rs. 96.09 billion at Nepal Rastra Bank as of mid-March 2016. Investing in real state has also contributed to the liquidity crunch.

The government’s inability to boost exports is blamed for the deficit. The official statistics show Nepal’s trade dependence on India has rapidly increased in recent days.