--By Siromani Dhungana

 

The country is likely to witness a terrible trade deficit reports- one after another- unless the government takes concrete and bold decisions to overcome it.

 

What could be the concrete and bold decision to narrow down the ballooning trade deficit?

 

“It is nothing other than accelerating the hydropower projects,” said former finance secretary Rameshore Khanal.

 

According to the data released by Nepal Rastra Bank (NRB), the trade deficit has increased by 11.3 per cent to Rs 128.79 billion in the first quarter of the current fiscal year 2013-14 as compared to the corresponding period of the last fiscal year.

 

Informing that the country imports petroleum products worth Rs 110 billion in a year, Khanal argued that the trade deficit will continue widening unless we significantly reduce the import of petroleum products.

 

“Industries are running through thermal plants and households are compelled to buy Liquefied Petroleum Gas (LPG), resulting in the surge of petroleum products demand,” said Khanal. Consumption of petroleum product worth Rs 60 billion can be reduced by generating hydroelectricity in the country, he added.

 

Trade deficit has a multiple effects since it drains money from country’s economy, lowers wages and forces the country to witness lower standard of living, he noted.

 

The production has stagnated, while the demands of sophisticated goods such as computers, automobiles, micro-oven and televisions have propelled imports to a record high, according to him.

 

“Except any miracles, we cannot increase productivity in the near future as the country still lacks preconditions that spur productivity,” economist and chief finance advisor Dr Chiranjivi Nepal argued.

 

It is time policymakers and businesses made concerted and coordinated attempts to tackle country’s trade imbalances before we are faced with a serious crisis, he further said, adding that it is right time to address the issue as the country is all set to get a moderate and liberal government led by parties which possess liberal views about economy. 

 

In the first quarter, the trade deficit with India – with which the country has above 65 per cent trade – surged by 14.2 per cent, whereas with third countries increased by 5.9 per cent only. The data released by NRB further stated that the country exported Rs 23.07 billion worth merchandise only, while imported Rs 151.86 billion worth in the first three months of the current fiscal year. However, the central bank has reported Rs 52.74 billion surplus Balance of Payment (BoP) in the first quarter against the surplus of Rs 2.05 billion in the period last fiscal year.

 

The macroeconomic indicator has also revealed that the foreign exchange reserve has increased by 13.8 per cent to Rs 606.82 billion in mid-October up from Rs 533.3 billion from mid-July.

 

Likewise, the inflow of remittances, a lifeline of Nepal’s economy, has also posted an increment by 38.2 per cent to Rs 135.03 billion in the first quarter.