Import decline doesn’t bode well for economy

Kathmandu, Aug. 26

Nepal's import of goods in the first month of the fiscal year (mid-July to mid-August) has continued to go down for the second consecutive year.

The total imports decreased by 12.9 per cent in the first month of the last Fiscal Year 2022/23 and it further shrank by 1.56 per cent in the current year 2023/24, according to the statistics of the Department of Customs (DoC).

Nepal imported goods worth Rs. 150.7 billion in 2021/22, which came down to Rs. 131.3 billion in 2022/23, and to Rs. 129.2 billion this year. This is a significant correction in terms of the country foreign trade since its imports had surged by a whopping 75.66 per cent in 2021/22 from Rs. 85.8 billion a year before that.

This drop in imports has reduced the size of total international trade of the country – it has come down to Rs. 142.7 billion in the first month this year from Rs. 171.5 billion in the same period two years earlier.

The first month is significant for the international trade because of the great festivals ahead, targeting which traders and importers bring in clothes and other goods during this month. A leap month this year, however, could have delayed the import of festival goods.

But leaders of the Federation of Nepalese Chambers of Commerce and Industry (FNCCI) as well as other business organisations have been warning that the festival season wouldn't be encouraging in terms of market revival.

"Traders and importers have not opened Letter of Credit (LC) to import the goods for Teej, Dashain and Tihar," Senior Vice-President of the FNCCI, Anjan Shrestha, had said in a public programme last week. This fact is echoed by the business delegations meeting the prime minister, finance minister and industry minister.

 

Decreasing imports impact revenue

Decreasing imports will hurt the country's revenue collections at the customs. Customs duty is the second largest source of income for the government.

The amount of revenue collection has remained the same in the first forty days of the year in this and last fiscal. Interestingly, tax revenue of the government for both the years stands at Rs. 81.8 billion, which is about 6.3 per cent of the total annual estimates, according to the Financial Comptroller General Office. In the last fiscal, only about 70 per cent of the annual revenue target was met.

The government and the Nepal Rastra Bank had imposed measures to stop the sliding foreign currency reserves in 2022/23 by discoursing imports. The restrictions covered the imports of luxury goods. In addition, the NRB had implemented a provision that required the importers to maintain 50 per cent or 100 per cent cash margins while opening the LC to import, primarily, luxury goods.

According to the experts and businesspersons, decreasing demands in the domestic market has also discouraged the import of foreign goods.

 

Imports go up

Meanwhile, imports from India and China, two major source countries, have gone up significantly. Imports from India have jumped to Rs. 81.2 billion this year from 78.6 billion last year, while imports of Chinese goods increased to Rs. 21.9 billion from Rs. 18.7 billion. Imports from the United Arab Emirates, Argentina, Indonesia, Belgium, and the United States of America saw a decline.  

Petroleum products (diesel, petrol and liquefied petroleum gas) are the top three imports of Nepal, followed by iron and steel, paddy, smartphone and gold.

Similarly, export share to total trade has gone down to 9.48 per cent this year from 12.11 per cent in 2021/22. In mid-July to mid-August this year, Nepal exported goods worth Rs. 13.5 billion which is less by 8.65 per cent of the last year's 14.8 billion, while in 2021/22, the country's exports amounted to Rs. 20.7 billion in the first month.

But a good news for this year is that Nepal's export to China reached Rs. 361 million in the first month this year from Rs. 62 million in the same period last year. If this trend continues, Nepal will have an opportunity to expand as well as diversify its export trade. 

Published in The Rising Nepal daily on 27 August 2023.