According to the current macroeconomic report published by Nepal Rastra Bank, the country’s trade deficit amounted to Rs211 billion during the two-month period from mid-July to mid-September, down from Rs217.64 billion during the same period last year. During the same period, Nepal exported goods worth Rs12.15 billion, up 26 percent year-on-year while imports fell 1.2 percent to Rs22.95 billion.

Nepal has seen a negative growth in imports during the past five years. Imports from India account for 62 percent of the total imports, according to the central bank’s statistics. In the first two months of 2015-16, Nepal’s imports were down 17.5 percent.

Nepal's third-country imports fell sharply by 19.8 percent while those from India dropped 2 percent, the central bank said. The country’s trade balance has also improved with the fall in imports of vehicles and spare parts and petroleum products which are the largest imports from India.

During the period, imports of vehicles and spare parts fell 9.3 percent to Rs16.30 billion. Oil imports declined 8 percent to Rs28.46 billion.

Baikuntha Aryal, secretary of the Ministry of Industry, Commerce and Supplies, attributed the drop in the trade deficit to the implementation of government policies aimed at reducing imports and boosting exports. “The government has enforced import restrictions on a number of luxury goods without going against the norms of the World Trade Organisation,” said Aryal, adding that the policy measures had started showing results.

Nepal’s imports from China, however, were up 39.2 percent over the period. Aryal said imports from China might have increased due to an increased inflow of goods such as clothes, fruits and electronic goods for the festival season.

Shipments to India jumped 46 percent while export earnings from the northern neighbour fell 17.4 percent. Export earnings from third countries rose by less than 1 percent.

Over the period, earnings from the export of cardamom, cinnamon, handicrafts and thread to the southern neighbour almost doubled. Exports of Nepali lokta paper and its products and other handicraft items to third countries also increased by a notable amount.

According to Aryal, the increase in the cash incentive provided to exporters to 5 percent has also impacted the export of a number of items including handicrafts.

With the expanding trade deficit in check, the country’s balance of payments showed a surplus of Rs8.83 billion compared to a deficit of Rs25.45 billion in the same period last year. The current account deficit to came down to Rs21.79 billion from Rs35.16 billion, providing a cushion in the country’s foreign currency reserves.

According to the central bank, the country’s foreign currency reserves increased to Rs1.07 trillion in mid-September from Rs1.03 trillion in mid-July. The amount is enough to pay for the import of goods and services for 8.4 months.