Tuesday, 7 February, 2023

Limit Ballooning Trade Deficit

Limit Ballooning Trade Deficit

Shyam Prasad Mainali

Recently, Nepal’s imports have increased exponentially. It is not known whether it is due to the demands for development or the need of domestic market. Present trends of slow growth of domestic production are likely to increase further. Due to the low rate of production, there is a low possibility of expanding different goods and services in near future. To meet the purpose of expanding exports and minimising imports, a good planning and efficient management is necessary.

The purpose of such management should not be to control per capita imports. It should be able to harness the limited amount of foreign exchange. Management needs to go further based on resources available for import financing in line with the national objectives of development, equity and satisfaction of basic needs of citizens.

Import strategies should be concerned with the purpose of planning, managing and reviewing imports to increase GDP. Imports within the country thus enhance the economy's capacity to support the macro-economic situation. Priority should be given to increasing the domestic production. The State’s policy must be to encourage import substitution industries in the areas where raw materials are sufficiently available. Likewise utmost priority should be given to establish export-oriented industries to improve economic situation and trade deficit. Such industries need to be chosen based on the competitiveness of external markets if Nepal is really committed to improving the present status of international trade deficit.

Appropriate macroeconomic policies such as monetary one need to be formulated and designed to facilitate exports with price stability, sufficient foreign reserves and realistic exchange rates. Similarly, encouraging lending policies help promote international trade. The trade deficit has reached Rs 568 billion in just four months. According to the Department of Customs, Nepal’s trade deficit has been increasing at a high rate because of the increase in imports of even domestically produced goods. Imports have increased by 61.57 per cent compared with the same period of the previous financial year. Exports of goods worth Rs 40.20 billion in the first four months of last year have now increased to Rs 82.12 billion, a 104 per cent increase.

Increase in a small number of exports has not substantial impact on the trade deficit. Export items include soybean oil and refined crude palm. A situation exists as imports might need to be reduced forcefully for the purpose of balancing trade and foreign exchange reserves. Additionally, Nepal is heavily dependent on the imports of the construction materials for development and consumer goods.

To promote the supply side of goods exported from Nepal, production systems, qualitative infrastructure and marketing mechanism are highly required. The government must think seriously to furnish production and development programme within the country and in every state from the production to export market level. Production, infrastructure, and marketing are the key requirements to strengthen the export trade. The slogan 'Export for Development' of the past seems to have lost its relevance now. It is clearly seen in terms of cash incentives and tariff reduction.

Time has come to search for the answers to some questions such as why is the pace of increasing exports at present very slow? Have the government and other concerned bodies set robust goals in this regard? Are there any appropriate incentive systems on behalf of the government to encourage exports? Are new government policies enough and appropriate for its promotion? What sorts of measures should the government take for improvement? How the monitoring system of the government is and what is it monitoring? How is the performance of the Trade and Export Promotion Centre? Is it effective and result-oriented and does it have adequate resources in terms resources? How is the import system managed?

Critics have pointed out various factors such as the declining trend in world trade, the impact of COVID-19, increasing competition and the formation of regional blocs. Inadequate infrastructure and bureaucratic hurdles along with the weak and ad hoc policy of the government can also be cited as inimical to Nepali exports. We do not hesitate to express the reality of weak and inefficient diplomacy of the country. Our economic diplomacy has been largely ineffective. Even coordination between the foreign ministry and other sectoral ministries has been neglected. Negative and sluggish attitude of Nepali diplomatic missions abroad is a major obstacle on the way of enhancing the export of Nepali products.

For increasing imports related to the production of nonessential consumer goods has additionally led to the trade deficit. A robust discretionary action is highly required to improve and curb further growth in foreign debt and to be serious in the appropriate use of aid. Liberalisation policy also should be shifted towards improving the technology and efficiency of intermediate and capital goods industries. Such initiatives are necessary to reduce the cost of domestic products so that it incentivises competitiveness of such industries on the international market and promotes self-reliance.

A commitment for preparing strategies to enhance rapid exports is vital. Sufficient investment to prepare infrastructure of high concentration of the export industries within the country is essential. Being an agriculture-based country, trade volume could be raised by making technology-friendly and commercialising agriculture sector otherwise increasing export volumes cannot be met. Sincere efforts for development, consolidation and promotion of agricultural production and trade should be given utmost priority. This is the precondition for the betterment of this specific issue. Furthermore, the tourism industry is a vibrant sector with the potential to contribute and raise the status of foreign exchange reserves.

(Mainali is former government secretary.)