Analysts have warned that the ongoing political turmoil in Bangladesh may disrupt Nepal's trade, including the signing of the first agreement to export electricity to the energy-hungry nation.

Nepal, India and Bangladesh were scheduled to sign the power trade agreement on July 28 to export 40MW of electricity to Bangladesh via India.

Bangladesh has been facing its worst political crisis since independence in 1971. On Monday, Prime Minister Sheikh Hasina resigned and fled amid massive anti-government protests.

“It’s more than 15 days since cargo trucks from Bangladesh have not moved. The containers ready to be dispatched from Nepal are on hold,” said Rajendra Sangraula, senior vice president of the Nepal Freight Forwarders Association. “There will be cargo movement until the situation returns to normal.”

Banglabandha is a major inland port in northern Bangladesh that was established to provide a trade link with Nepal through the Asian highway. The three nations are separated by the Siliguri Corridor, a 52km stretch of Indian territory. Phulbari is on the Indian side of the border.

The Siliguri Corridor, also called 'Chicken's Neck,' connects India's northeastern states to the rest of the country. Bangladesh and Nepal lie on either side of the corridor, and Bhutan lies on the northern side.

Bilateral trade between Nepal and Bangladesh began to increase after the Kakarbhitta-Phulbari-Banglabandha transit route was opened on August 31, 1997.

“We used to receive 20–25 cargo trucks from Bangladesh at normal times,” said Sangraula.

Traders said that despite having potential trade opportunities with Bangladesh, exports have remained minimal due to 35 percent import duty levied by the country.

Sangraula said Nepal has been majorly importing jute, a raw material for garments, and branded readymade garments like Nike and Adidas, among others.

Nepali traders who have already opened Letters of Credit (LC) will have to wait to receive their ordered goods.

Sangraula said the domestic industry, which depends on raw materials imported from Bangladesh, will be mostly affected. Producers might also need to look for other markets amid the crisis in Bangladesh.

The total trade between Nepal and Bangladesh is Rs4.78 billion. Nepal’s imports from Bangladesh declined by 30.13 percent in the last fiscal year ended on July 15. According to the Department of Customs, Nepal’s imports fell to Rs4.22 billion in the past year.

Export, too, declined by 3.37 percent to Rs554.66 million in the review period. Nepal faced a trade deficit of Rs3.67 billion with Bangladesh in the period. Nepal has been facing a trade deficit with Bangladesh since 2014-15.

In the last fiscal year, Nepal majorly imported raw jute, medicine, lead-acid accumulators, oil cakes and other solid residues of soybeans, toilet paper, and juice.

Sangraula said that, in the long term, the changes in the government system might impact the bilateral agreement, which has been in the works for 15 years. It will also affect the Bangladesh, Bhutan, India, and Nepal Motor Vehicle Agreements.

“If the crisis continues for a long period, it will have repercussions on trade. But as in Sri Lanka, the situation in Bangladesh may eventually get normal,” said Paras Kharel, executive director of the South Asia Watch on Trade, Economics and Environment.

A trade expert said that Bangladesh holds a considerable export potential for Nepal, but this has yet to be realised. Currently, Nepal exports most of the lentils it produces to Bangladesh.

Kharel said the new government in Bangladesh might not give much importance to BBIN and BIMSTEC. “The trade between two countries might remain the same, with no progress in the coming days.”

Kharel said the electricity import might also be on hold for some time, but as it is their need, it will be continued.

In June, Bangladesh's Cabinet Committee on Government Purchase approved a proposal by the Bangladesh Power Development Board to import 40 MW of electricity from Nepal.

Nepal plans to sell 144,000 MWh (megawatt-hour) of electricity in five months at 6.4 cents (US dollar) a unit.

Nepal will transmit the energy to India through the 400KV Dhalkebar-Muzaffarpur cross-border transmission line before India transmits the equivalent to Bangladesh.

A study conducted by SAWTEE on Nepal-Bangladesh trade shows that Nepal's exports to Bangladesh have been limited to agricultural products, with lentils making up approximately 90 percent of exports over the past five years.

As Nepal moves closer to graduating from the Least Developed Country (LDC) status, exploring alternative markets to mitigate the impact of tariff increment in some of its major trade destinations becomes crucial. According to the report, there is substantial potential for strengthening bilateral trade ties with Bangladesh.

Experts have said that the proposed preferential trade agreement, which has been discussed since 2019, could remove this constraint, but Bangladesh faces various challenges.

This year, too, a commerce secretary-level meeting between Nepal and Bangladesh held in Kathmandu in April to strengthen economic ties could not reach a conclusion on the much-delayed bilateral preferential trade agreement between the two neighbours.

Since 2015, Nepal and Bangladesh have been mulling to establish direct bus services between their respective capitals.

The distance between Kathmandu and Dhaka is more than 1,184 km, and the bus journey is expected to take 24 hours.

The proposed route extends from Dhaka to Banglabandha (510 km), Banglabandha to Kakkarbhitta, Nepal via Panitanki (56 km) and Kakkarbhitta to Kathmandu (618 km). The trip from Kakkarbhitta to Kathmandu takes around 11 hours.