Nepal’s External Sector Indicators Remain Strong Despite Widening Trade Deficit

Nepal’s external sector indicators remained broadly positive in the first four months of the current fiscal year, supported by strong remittance inflows, rising foreign exchange reserves, and subdued inflation, even as the country’s trade deficit widened.

According to the Current Macroeconomic and Financial Situation Report released by Nepal Rastra Bank (NRB) on Monday, the country’s current account recorded a surplus of Rs 279.65 billion during the review period, which was nearly double the Rs 147.78 billion surplus posted in the corresponding period of the previous year.

Similarly, the balance of payments (BoP) remained in surplus at Rs 318.40 billion, compared to Rs 205.83 billion in the same period last year.

The positive indicators were largely driven by robust remittance inflows and capital transfers, which helped offset the pressure from a widening trade deficit. Remittance inflows surged 31.4 percent to Rs 687.13 billion in the four months of FY 2025/26, compared to a 9.4 percent increase a year earlier.

Net capital transfer also increased to Rs 6.21 billion, more than double the Rs 2.47 billion recorded a year ago. However, foreign direct investment (equity only) declined sharply to Rs 2.49 billion from Rs 5.76 billion in the corresponding period of the previous year.

The gross foreign exchange reserves also reflected the strong external sector indicator with an increase of 14.1 percent to Rs 3,055.52 billion by mid-November 2025, up from Rs 2,677.68 billion in mid-July 2025.

Despite these positive indicators, Nepal’s trade deficit widened 12.0 percent to Rs 515.96 billion in the first four months of the fiscal year, reversing a marginal 0.3 percent decline recorded a year earlier. Merchandise imports rose 18.7 percent to Rs 609.45 billion, while exports increased 77.5 percent to Rs 93.50 billion.

Exports to India and other countries increased 113.9 percent and 2.9 percent, respectively, while exports to China declined 56.2 percent. Shipments of soybean oil, cardamom, palm oil, jute goods, and shoes and sandals increased, whereas exports of zinc sheets, particle board, tea, carpets, and handicraft products declined.

On the import side, purchases from India, China, and other countries rose 6.6 percent, 28.5 percent, and 48.9 percent, respectively. Imports of crude soybean oil, gold, chemical fertiliser, transport equipment, vehicles and spare parts, and silver increased, while imports of hot rolled sheets in coil, edible oil, garlic, oil seeds, and pulses declined.

Meanwhile, inflationary pressures remained subdued. Year-on-year consumer price inflation eased to 1.11 percent in mid-November 2025, down from 5.60 percent a year earlier. Food and beverage prices declined by 3.32 percent, while non-food and services inflation stood at 3.69 percent.

Average inflation stood at 1.53 percent in the fourth month of the current fiscal year, compared to 4.59 percent in the same period last year.