Nepal’s Trade Deficit Widens as Imports Surge 38% in First Quarter of FY 2026/27

Nepal’s merchandise trade deficit widened sharply in the first quarter of fiscal year 2026/27 as imports surged amid rising domestic demand, particularly during the festive season, despite strong growth in exports.

According to data from the Department of Customs, Nepal imported goods worth Rs 646.78 billion during the first three months of the current fiscal year, up 38.18% from Rs 468 billion recorded during the same period last year.

Meanwhile, merchandise exports increased 57.03% year-on-year to Rs 114.28 billion, compared with Rs 72.78 billion a year earlier.

The faster growth in imports resulted in a 34.71% increase in the trade deficit, which reached Rs 532.49 billion, compared with around Rs 395 billion in the corresponding period of the previous fiscal year.

The combined value of Nepal’s merchandise exports and imports reached Rs 761.07 billion during the review period, representing a 40.71% increase from approximately Rs 540 billion a year earlier.

Imports accounted for 84.98% of total foreign trade, while exports made up just 15.02%.

The import-to-export ratio stood at 5.66, meaning Nepal imported goods worth approximately Rs 5.66 for every rupee earned from exports.

Nepal’s exports have nevertheless maintained strong momentum. The country recorded merchandise exports worth more than Rs 315 billion in the previous fiscal year, setting a new annual record. Continued growth during the current fiscal year could push exports beyond that level if the trend is sustained.

Fuel remained the largest component of Nepal’s import bill during the first quarter.

The country imported petroleum products worth Rs 119 billion, while imports of raw materials used in vegetable oil production amounted to Rs 66.66 billion.

Vehicle imports and related raw materials were valued at Rs 53.19 billion, while machinery and mechanical parts amounted to Rs 42.11 billion. Imports of electrical equipment stood at Rs 40.84 billion, iron and steel at Rs 39.37 billion, and fertilisers at Rs 32.75 billion.

Among individual commodities, crude soybean oil was the largest import item, valued at Rs 52.60 billion. Diesel imports amounted to Rs 47.31 billion, followed by petrol worth Rs 24.62 billion and liquefied petroleum gas (LPG) worth Rs 23.18 billion.

Nepal also imported chemical fertilisers worth Rs 19.30 billion and smartphones worth Rs 18.81 billion. Gold imports during the period were valued at around Rs 3 billion.

Vegetable oils continued to dominate Nepal’s merchandise exports during the first quarter.

Exports of vegetable oils were valued at Rs 59.32 billion, making the category the largest contributor to the country’s export earnings.

Exports of yarn stood at Rs 4.97 billion, while tea, coffee and spices generated Rs 4.65 billion. Carpet-related exports amounted to Rs 3.72 billion.

Among individual products, soybean oil exports were valued at Rs 52.60 billion. Carpet and other textile products generated Rs 3.32 billion, while jute exports reached Rs 2.96 billion.

Nepal also exported cardamom worth Rs 2.57 billion, sunflower oil worth Rs 2.53 billion and palm oil worth Rs 2.42 billion.

The large volume of vegetable oil trade reflects Nepal’s role in importing crude vegetable oils, processing them domestically and exporting refined products, particularly to India.

India continued to be Nepal’s largest trading partner during the first quarter, accounting for the highest volume of both imports and exports.

Nepal imported goods worth approximately Rs 366 billion from India and exported goods worth Rs 95.59 billion to the neighbouring country. This resulted in a bilateral trade deficit of around Rs 271 billion.

China ranked second among Nepal’s trading partners. Imports from China amounted to approximately Rs 134 billion, while Nepal’s exports to China stood at only around Rs 670 million, resulting in a substantial trade imbalance.

Argentina ranked third, with imports of Rs 35.65 billion, largely consisting of raw materials used in vegetable oil production. Saudi Arabia followed with imports worth Rs 11.56 billion.

Nepal imported goods worth Rs 9.04 billion from Brazil and Rs 8.93 billion from the United States. Meanwhile, exports to the US reached Rs 6.99 billion, resulting in a comparatively smaller bilateral trade deficit.

The latest customs figures come alongside encouraging external-sector data from Nepal Rastra Bank (NRB).

According to the central bank’s Current Macroeconomic and Financial Situation of Nepal, merchandise imports increased 31.6% year-on-year to Rs 401.52 billion during the first two months of FY 2026/27.

Merchandise exports during the same period rose 61.9% to Rs 76.59 billion. Exports to India increased 70.6%, while exports to China surged 137.6%. Exports to other destinations rose 22.7%.

The increase was supported by higher exports of soybean oil, polyester yarn and thread, palm oil, zinc sheets and particle board.

On the import side, purchases from India increased 27.4%, while imports from China rose 17.2%. Imports from other countries increased 56.6%, driven by higher purchases of petroleum products, chemical fertilisers, crude soybean oil, edible oils, vehicles and transport equipment.

Despite strong export growth, the trade deficit during the first two months widened 26% to Rs 324.93 billion.

The export-import ratio improved to 19.1%, compared with 15.5% a year earlier, although export earnings remained significantly lower than the import bill.

Despite the widening merchandise trade deficit, strong remittance inflows continued to support Nepal’s external sector.

Remittance inflows increased 23.9% to Rs 436.36 billion during the first two months of FY 2026/27. In US dollar terms, remittance inflows rose 13.5% to $2.85 billion.

The current account surplus increased to Rs 169.04 billion, from Rs 130.97 billion in the corresponding period of the previous fiscal year.

Similarly, the balance of payments surplus expanded to Rs 187.68 billion, compared with Rs 153.68 billion a year earlier.

Nepal’s foreign exchange reserves also continued to strengthen.

By mid-September 2026, reserves had increased 4.3% from mid-July to Rs 4.06 trillion. In US dollar terms, reserves rose 4.6% to $26.48 billion.

The reserve position was sufficient to cover approximately 20.9 months of merchandise imports and 17.8 months of merchandise and services imports, indicating a relatively strong external liquidity position despite the persistent merchandise trade deficit.

Foreign direct investment inflows also showed improvement during the review period.

Equity-based FDI inflows, excluding reinvested earnings, increased to Rs 2.98 billion, compared with Rs 1.27 billion in the same period last year.

Although the increase represents a significant improvement, the overall volume of FDI remains relatively small compared with Nepal’s merchandise trade and external financing requirements.

The latest trade figures highlight the continuing structural imbalance in Nepal’s external trade. While exports are growing at a strong pace and have reached record levels, imports continue to expand at a much larger scale.

The combination of rising imports of fuel, industrial raw materials, vehicles, machinery, electronics and consumer goods has kept the trade deficit under pressure.

At the same time, strong remittance inflows, rising foreign exchange reserves and an expanding current account surplus have provided important support to Nepal’s external position.

The challenge for the economy remains to sustain the recent acceleration in exports while reducing excessive dependence on imported goods and strengthening domestic production and value-added industries.