The balancing act

Any policy devised to correct the trade imbalance, if done in isolation, will be pointless.

With the economy in tatters, Nepal’s yawning trade deficit has once again become a topic of discussion. The trade gap, which shrank by 17 percent year-on-year to Rs1,061 billion in fiscal 2019-20 has increased by 28 percent to Rs1,356 billion in 2020-21. As of the first six months of fiscal 2021-22, the deficit had already crossed the Rs800 billion mark. If this trend continues, the trade deficit will likely reach Rs1,600 billion by the end of the current fiscal year. Although the sharp change in the figures in recent years is mainly due to the pandemic, the trade imbalance problem is not new to the country’s economy. Like other least developed countries which depend on large-scale imports and face a persistent trade deficit as their economies grow, Nepal is also stuck with the same problem, but it has become more severe since the mid-2000s. This state of affairs called for policy to correct the imbalance.