Last week brought some good news for the Nepali economy. The growth rate of the country’s trade deficit, as witnessed in the first four months of the current fiscal year, has decreased significantly by 29.4 per cent as compared to the same period of the last fiscal year. In the first four months of the last fiscal year, trade deficit had shot up by 35.7 per cent; this year it has increased by only 6.3 per cent. Trade experts are citing increase in the export of woolen carpets, readymade garments, pashmina and handicrafts – some of the country’s major exportable items – and a drastic decrease in the import of gold as the major reasons behind the significant drop in the trade deficit.

 

The decrease in trade deficit is significant because it has taken place in spite of a sharp increase of 14.4 per cent in the import of petroleum products. Nepal’s total export in the first four months of this fiscal year stands at around Rs 29.62 billion whereas the import of petroleum products alone has been worth more than Rs 37.85 billion over this period. However, we can take a sigh of relief as the import of gold has declined by 29.6 per cent and stood at Rs 6.29 billion in the first four months of the current fiscal year as compared to the same period last year.  

 

There is no doubt that the best way to tackle the trade deficit problem is increasing our exports. The government acknowledged this fact and set a target of increasing our total annual exports to the tune of Rs 100 billion in the last fiscal year itself. The target could not be reached in the last fiscal year. But there are some early signs that this target could be reached this fiscal year. The export of cardamom, honey, noodles, handmade paper and Pashmina – some of the major exportable items identified by Nepal Trade Integration Strategy 2010 – has gone up in the first four months of this fiscal year.

 

Available trade statistics show that our exports go up when there are no industrial strikes. That is one of the major reasons for the recent increase in exports. Therefore, to make the decrease in trade deficit sustainable, the political parties and the trade unions affiliated to them must commit to make the industrial sector a strike-free zone. 

 

Besides encouraging exports, we should also focus on discouraging the imports of items such as gold and petroleum and substituting the import of commodities such as iron and steel. The policy of discouraging the import of gold should be given continuity. Though the demand for gold cannot be controlled by banning imports, there can be ways to meet the demand for gold for investment purpose as shown by India which has allowed the banks to accept ‘gold deposits’ whereby the bank buys gold on the name of the customer in the international market with the money the bank has parked abroad. 

 

To lower the import of petroleum, the government should allow the mixing of permissible amount of ethanol in petrol. Many countries are already doing this. Ethanol is produced as a byproduct by the sugar factories.

 

On the other hand, the sugar factories produce electricity by converting thermal energy into electrical energy. This electricity which is produced by the burning of bagasse is more than the factories require. The government should buy the surplus electricity thus produced by the sugar factories. This way, we can add 20 to 25 MW of electricity to the national grid. This step would not only help us tackle the load-shedding problem to some extent but also help us partly substitute the import of diesel which is burnt to produce electricity for industries.

 

Similarly, to substitute the import of iron and steel to some extent, we should start extracting iron from the identified mines and also explore new iron mines. But the irony is that the mines from where the metal used to be extracted traditionally are closed down. This process must be reversed.