Govt to launch white paper on ballooning trade deficitThe Ministry of Commerce is all set to introduce a white paper on ballooning trade deficit of the country, which would pinpoint bottlenecks that are hindering exports, help expand basket of goods and services that could be marketed overseas, and spell out roles different ministries could play to narrow down the widening trade gap.
The Ministry of Commerce is all set to introduce a white paper on ballooning trade deficit of the country, which would pinpoint bottlenecks that are hindering exports, help expand basket of goods and services that could be marketed overseas, and spell out roles different ministries could play to narrow down the widening trade gap.
The move comes at a time when Nepal’s trade deficit has widened to 35 percent of the gross domestic product. Nepal’s trade deficit stood at Rs917 billion in the last fiscal year, up 30 percent than a year ago, according to the Nepal Rastra Bank. The gap widened sharply as Nepal imported goods worth Rs8 for every rupee of goods that were shipped abroad. This trade gap is expected to widen further in the current fiscal year and stand at an alarming Rs956 billion.
A growing trade deficit exerts pressure on the country’s foreign exchange reserves, because more money leaves the country to settle import bills.
“This is a major problem for the economy. And it cannot go on forever,” Commerce Secretary Chandra Kumar Ghimire said. “That’s why we are working on the white paper, which will be made public soon.”
Many have been blaming the Ministry of Commerce for doing nothing to narrow the trade deficit. But the ministry has said it cannot work in isolation to bridge the gap. “We need infrastructure, investment, basket of different goods and services that could be exported, quality human resources, energy, promotional campaigns and appropriate policies to generate a favourable outcome,” Ghimire said.
The ministry has, thus, sought support of different ministries to bridge the trade gap. “The chief secretary has already directed secretaries of all the ministries to present a roadmap that could narrow Nepal’s trade deficit,” Ghimire said.
One of the plans floated by the government to bridge the trade gap is import substitution. This refers to ramping up domestic production to replace goods that are currently being imported. However, Nepal may never be able to reduce imports of some of the goods like petroleum products, machinery required by industries and certain raw materials, as they are not produced in the country. But to offset foreign currency losses triggered by these imports, Nepal has not been able to create a bigger basket of diverse goods and services that could be exported.
Over the years, the contribution of services in the economy has grown substantially. But most of the services, such as trading of imported items or those catered through beauty parlours and motorbike repair shops, cannot be exported. So, apart from tourism and few others, many of the services produced in the country are non-tradable.
On the other hand, Nepal’s export basket of merchandise goods is limited to that of tea, herbs, coffee, cardamom, ginger, woollen carpets, shoes, pashmina, textile, readymade garments and handicraft products. Even these goods are not manufactured in a large quantity and Nepal has not focused much on production of other goods that can gain easy market access abroad.
For example, 66 Nepal-made items, including certain kinds of carpets and rugs, shawls, scarves, luggage articles, handbags, wallets, travel bags, headbands, blankets, hats, and gloves can now enter the US without being subject to any duty. But only 0.4 percent of Nepali goods entering the US are taking benefit of the duty-free facility.
“We have to scale up production of goods that can gain duty-free, quota-free market access abroad,” Ghimire said.
While volume is important, focus should also be on quality, because many goods that Nepal produces do not meet international standard, according to Ghimire. “Also, we should improve our road networks through which cargo trucks pass, build robust infrastructure at customs points to ensure uninterrupted flow of goods, and try to convince our trading partners to dismantle non-tariff barriers, such as problems at customs points, that causes unnecessary problems to traders,” Ghimire said, adding, “Above everything, we need more investment, both domestic and foreign, to scale up our production so that we can generate export surplus.”