By Krishna Raj Bajgain

Nepal's service trade has experienced an erratic trend over the past 23 years. In the fiscal year 2000/01, Nepal's export ratio in service trade was 1:0.69, which reached 1:1.89 in 2021/22. The export-import ratio in service trade showed slight improvement and stood at 1:1.4 in the first eleven months of 2022/23.

According to a report published by Nepal Rastra Bank, Nepal has witnessed a trade surplus in various service sectors, including maintenance services, tourism services, telecommunication, computer and information services, construction services, other business services, and government goods and services. However, Nepal has experienced a significant trade gap in transport and education services. Additionally, there is a trade deficit in insurance and pension services, as well as charges for intellectual property rights. The substantial trade deficit in transport, education, and IP services has resulted in a significant trade deficit in the overall service trade. In the first eleven months of 2022/23, the trade deficit stood at Rs 67.68 billion, with Rs 168.533 billion in exports and Rs 236.21 billion in imports.

Among the exportable services, travel, other business services, and transport are the main contributors, accounting for 34.5%, 10.5%, and 9.4% respectively, of Nepal's total service exports in the first eleven months of 2022/23. Similarly, among the imported services, travel (including education), transport, and other business services are the primary categories, accounting for 50.8%, 31.6%, and 10.5% respectively, of Nepal's total service imports in the review period.

The export-import ratio of Nepal's trade in services was 1:0.69 in the fiscal year 2000/01, which dropped to 1:1.89 in the fiscal year 2021/22. There has been a slight improvement in the export-import ratio in the first 11 months of the current fiscal year 2022/23, driven by an increase in inbound tourism following the easing of pandemic restrictions. However, Nepal's import of services has reached its peak, standing at Rs 236 billion in the first 11 months of the fiscal year 2022/23. The significant increase in the import of educational services can be attributed to the outflow of students seeking quality education, better employment opportunities, and a Western lifestyle in developed countries. Nepali parents seem helpless and hopeless in convincing their children about their future prospects in Nepal.

In contrast, Nepal's export of travel services reached Rs 58 billion in the first 11 months of the fiscal year 2022/23, compared to Rs 32.4 billion in 2021/22. The highest earnings from travel services were recorded in 2018/19 with Rs 75 billion in exports. However, the export of travel services experienced a decline due to the impact of the deadly pandemic in 2020. The resurgence of inbound tourism indicates a potential boom in the Nepali tourism industry. To accelerate this trend, Nepal should implement remedial measures to support the tourism industry, such as providing subsidised financing and making significant investments in tourism-related infrastructure. Additionally, new products with compelling stories should be introduced, with a particular focus on developing hill stations along the Chure and Mahabharat ranges, targeting tourists from north India. Based on the data presented, the following conclusions can be drawn:

● The main reason behind the significant trade deficit in Nepal's trade in services is the import of transport services and education services.

● The share of transport services in Nepal's total service imports is 32%.

● The share of education services in Nepal's total service imports is 38%.

● The trade deficit in education services is growing at an alarming rate and is expected to continue increasing in the future, especially with more lenient immigration policies in developed and developing countries. 

● The outflow of skilled human resources will deteriorate the already fragile situation in the service trade sector.

● The tourism sector has the potential to compensate for the significant trade deficit caused by education services. 

(Bajgain is a Senior Officer with the Trade & Export Promotion Center. The views expressed here are his personal.)