Chapter 3 · Week 3 — Foreign Trade: Exports, Imports and the Deficit
Foreign Trade and the Deficit
A trade gap of 21 percent of GDP, and the single commodity that explains almost all of this year's 77.77 percent export growth.
Nepal buys far more from the world than it sells to it. That is not news. What is worth knowing is exactly how the gap is composed, why this year's export figure jumped by 77.77%, and why almost none of that jump is what it looks like.
3.1 The three numbers
┌──────────────────────────────────────────────────────────┐ │ │ │ TRADE BALANCE = Exports − Imports │ │ │ │ Eleven months 2025/26 │ │ │ │ Exports Rs 247.57 billion │ │ Imports Rs 1,644.80 billion │ │ ────────────────── │ │ Trade balance Rs −1,397.23 billion │ │ │ │ A deficit of Rs 1.4 TRILLION in eleven months. │ │ That is 21.2% of GDP. │ │ │ └──────────────────────────────────────────────────────────┘
Two ratios make the scale intuitive:
EXPORT-IMPORT COVERAGE Exports ÷ Imports = 247.57 / 1,644.80 = 15.1% For every Rs 100 of goods Nepal buys from abroad, it sells Rs 15 worth back. Exports ███▊ Imports ████████████████████████████████████████ The other Rs 85 has to come from somewhere that is not goods. That is Week 4.
3.2 The 77.77% export growth, explained
The release shows export growth of 77.77% for the eleven months. That is an extraordinary number for any country. Here is where it came from.
TOP EXPORTS, Rs million, eleven-month basis commodity 2023/24 2024/25 change ───────────────────────────────────────────────────────────── Soyabean Oil 874.9 93,516.8 ×107 Polyester Yarn & Thread 10,058.7 12,272.3 +22% Woolen Carpet 9,730.1 9,777.6 +0% Cardamom 7,472.6 7,181.1 −4% Juice 7,913.2 7,234.3 −9% Jute Goods 6,193.0 7,368.0 +19% Particle Board 6,680.3 6,610.7 −1% Readymade Garments 5,802.9 5,141.6 −11% Tea 3,148.8 4,186.6 +33% Oil Cakes 2,671.4 3,268.1 +22% ─────────────────────────────────────────────────────────────
One line moved from Rs 875 million to Rs 93.5 billion. Soyabean oil went from a rounding error to the largest export Nepal has, more than seven times the next item.
Now look at the import table for the same period:
Crude Soyabean Oil (import) 13,022.6 94,775.2 ×7.3
┌────────────────────────────────────────────────────────────┐ │ THE MECHANISM │ │ │ │ import CRUDE soyabean oil Rs 94,775 m │ │ │ │ │ ▼ refine in Nepal │ │ │ │ export REFINED soyabean oil Rs 93,517 m │ │ │ │ Value added inside Nepal: the refining margin, │ │ and essentially nothing else. │ │ │ │ Gross export value ≈ Rs 93.5 bn │ │ Net contribution to the │ │ trade balance ≈ Rs −1.3 bn │ │ │ │ The headline export number counts the GROSS value. │ │ The economy captures the MARGIN. │ └────────────────────────────────────────────────────────────┘
This is a re-export trade built on a tariff difference: the input enters Nepal at one duty rate and the output enters India at a preferential one. It is perfectly legal and it employs people. But it is fragile in a specific way: it exists because of a rule, and it ends when the rule changes.
Strip soyabean oil out and Nepal's export performance is roughly flat: carpets unchanged, cardamom down, juice down, garments down, tea and jute up modestly. That is the real state of Nepali export competitiveness.
3.3 What Nepal actually buys
TOP IMPORTS, Rs million, eleven-month 2024/25 basis Petroleum Products 261,233.9 ████████████████████████ Crude Soyabean Oil 94,775.2 █████████ Transport Equip & Vehicles 86,635.0 ████████ Other Machinery and Parts 74,432.7 ███████ Ferrous Products 45,714.8 ████ Medicine 42,369.8 ████ Telecom Equipment 39,415.3 ███▊ Rice / Paddy 38,575.0 ███▋ Readymade Garments 36,721.6 ███▌ Textiles 30,354.7 ███ Electrical Equipment 30,146.5 ███ Chemical Fertilizer 27,750.1 ██▋ Gold 19,811.9 ██ Silver 6,786.5 ▋
Read that list as a description of the economy:
WHAT THE IMPORT BILL SAYS ABOUT NEPAL
Petroleum Rs 261 bn no domestic oil, no substitute
↑ 16% of all imports → an oil price shock is a
balance-of-payments event
Vehicles + machinery + electrical + telecom Rs 230 bn
→ no capital goods industry;
every factory built here
starts with an import
Rice Rs 38.6 bn → a country where most people
farm, importing its staple
Medicine Rs 42.4 bn → health is an import
Gold + silver Rs 26.6 bn → savings leaving the banking
system into metalThe rice line is the one to sit with. Nepal is an agricultural economy by employment and imports Rs 38.6 billion of its staple grain in eleven months. Productivity, not effort, is the constraint.
3.4 The petroleum channel
Petroleum is a sixth of the import bill and behaves differently from everything else: demand barely responds to price, and Nepal has no alternative supplier.
HOW AN OIL PRICE RISE TRAVELS THROUGH NEPAL
world oil price ▲
│
▼
import bill ▲ ─────────────► trade deficit ▲
│ │
▼ ▼
transport costs ▲ reserves pressure ▲
│ │
▼ ▼
WPI ▲ ──────► CPI ▲ import restrictions?
│ interest rate response?
▼
real wages ▼
One external price moves prices, the external balance and
policy simultaneously. This is why oil gets its own line
in the balance of payments table.3.5 Terms of trade
The release publishes export and import price indices, and their ratio.
┌──────────────────────────────────────────────────────────┐ │ │ │ export price index │ │ TERMS OF TRADE = ──────────────────────── × 100 │ │ import price index │ │ │ │ Rising → each unit exported buys more imports │ │ the country is getting richer per unit │ │ │ │ Falling → each unit exported buys fewer imports │ │ you must export MORE just to stand still │ │ │ └──────────────────────────────────────────────────────────┘
This is the ratio that decides whether export growth actually makes a country better off. A nation exporting 10% more volume at 15% lower prices is working harder for less.
3.6 Worked example — sizing the deficit properly
Illustrative arithmetic on published figures.
QUESTION: how much of the trade deficit is structural?
Eleven months 2025/26
Imports Rs 1,644.80 bn
Exports Rs 247.57 bn
Trade deficit Rs 1,397.23 bn
STEP 1 — remove the re-export round trip
Soyabean oil is roughly a wash: about Rs 94.8 bn in,
about Rs 93.5 bn out.
Adjusted imports 1,644.80 − 94.8 = Rs 1,550.0 bn
Adjusted exports 247.57 − 93.5 = Rs 154.1 bn
Adjusted deficit = Rs 1,395.9 bn
Barely changed — because the round trip nets to zero.
But look at what happened to the coverage ratio:
Headline coverage 247.57 / 1,644.80 = 15.1%
Adjusted coverage 154.10 / 1,550.00 = 9.9%
Nepal's genuine export earnings cover about TEN percent
of its genuine import bill, not fifteen.
STEP 2 — as a share of the economy
Adjusted deficit / GDP = 1,395.9 / 6,600.1 = 21.1%3.7 Direction of trade
Nepal's trade is overwhelmingly with one partner. The release breaks exports and imports into India, China and "Other", and the asymmetry is the point:
THE STRUCTURAL POSITION
┌───────────┬───────────────────┬───────────────────┐
│ │ EXPORTS to │ IMPORTS from │
├───────────┼───────────────────┼───────────────────┤
│ India │ the large │ the large │
│ │ majority │ majority │
│ │ ← preferential │ ← land border, │
│ │ access, pegged │ pegged rupee │
│ │ currency │ │
├───────────┼───────────────────┼───────────────────┤
│ China │ small │ substantial │
│ │ │ ← machinery, │
│ │ │ electronics │
├───────────┼───────────────────┼───────────────────┤
│ Other │ carpets, │ petroleum via │
│ │ pashmina, │ third parties, │
│ │ cardamom │ specialised │
└───────────┴───────────────────┴───────────────────┘
Two consequences that matter for every later week:
1. Nepal's trade cycle is India's trade cycle.
2. The rupee peg is not a policy choice that can be
easily reversed — it is the plumbing of the
dominant trade relationship.Formulas from this week
Trade balance = Exports − Imports
Coverage ratio = Exports ÷ Imports × 100
Net coverage = (Exports − re-exports)
÷ (Imports − matching inputs) × 100
Deficit / GDP = Trade balance ÷ Nominal GDP × 100
Terms of trade = export price index
÷ import price index × 100
Growth of any line = (this period ÷ same period last year − 1) × 100
— on a LIKE basis: eleven months vs eleven monthsWhat you should be able to do now
- State Nepal's trade balance and express it as a share of GDP.
- Compute the export-import coverage ratio and explain what it leaves unpaid.
- Explain the soyabean oil round trip and why it inflates export growth without improving the trade balance.
- Adjust the coverage ratio for a dominant re-export commodity.
- Read the import list as a description of the economy's structure.
- Trace an oil price shock through prices, the external balance and policy.
- Define terms of trade and say why export volume growth can still leave a country worse off.
Next week: the other Rs 85 in every 100 — remittances, tourism, the balance of payments and the reserves that all of it produces.
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