Nepal’s foreign trade expanded sharply in the first five months of the current fiscal year 2025/26, driven by a strong rebound in exports and rising imports. However, the latest data also underline persistent structural weaknesses—most notably a widening trade deficit and growing dependence on a narrow range of export items.
According to figures released by the Department of Customs, Nepal’s total foreign trade reached Rs 882.69bn by mid-December, marking a 20.07 percent increase compared to the same period of the previous fiscal year. Imports stood at Rs 766.18bn, while exports amounted to Rs 116.5bn.
Although exports surged by an impressive 58.17 percent year-on-year, they accounted for just 13.2 percent of total trade, highlighting the country’s continued reliance on imports to meet domestic demand.
Ballooning trade deficit persists
Despite strong export growth, the trade deficit widened to Rs 649.68bn in five months.
Trade imbalances with Nepal’s two largest trading partners—India and China—remain particularly stark. Nepal incurred a trade deficit of over Rs 339.02bn with India during the review period. Imports from India totaled Rs 434.06bn, while exports were limited to Rs 95.04bn.
The situation with China was even more skewed. Nepal imported goods worth Rs 163.73bn from China but exported just Rs 46.68m, resulting in a trade deficit of Rs 163.26bn.
Nepal posted a trade surplus with only a handful of countries. Romania emerged as the top surplus destination, with Nepal recording a net trade gain of Rs 63.47m over the five-month period. Sweden and Iraq were among other countries where Nepal maintained a positive trade balance. However, trade volumes with these countries remained small.
Petroleum imports overtake total exports
For the first time this fiscal year, fuel imports have exceeded Nepal’s total export earnings.
In the five-month period, Nepal spent Rs 121bn on fuel imports which surpassed total export earnings of Rs 116bn.
Petroleum products continue to dominate the import basket, reflecting Nepal’s heavy dependence on imported energy. Nepal imported Rs 45.6bn worth of diesel, Rs 27.33bn worth of petrol and Rs 22.39bn worth of LPG, and Rs 8.34bn worth of aviation turbine fuel (ATF) during the period.
The country also imported lube oil and petroleum bitumen, among others, during the period.
Heavy reliance on soybean oil exports
Soybean oil emerged as Nepal’s single largest export item, accounting for Rs 46.55bn in the first five months. This accounts for 40.12 percent of total exports.
Nepal also exported sunflower oil worth Rs 3.73bn during the same period.
This export surge is largely driven by the duty-free access Nepal enjoys under the South Asian Free Trade Area (SAFTA) in India. While India imposes high tariffs—up to 35.75 percent—on refined vegetable oils imported from third countries, Nepali products enter the Indian market at zero duty.
Taking advantage of this preferential access, Nepali firms import crude soybean and sunflower oil from global markets, refine them domestically, and re-export the finished products to India.
However, experts warn that this model is highly vulnerable. Any significant reduction in India’s tariffs on vegetable oils from other countries could erode Nepal’s competitive edge and potentially wipe out nearly half of its exports to India.
In the previous fiscal year, Nepal exported soybean oil worth Rs 106.79bn and sunflower oil worth Rs 12.33bn. Together, they accounted for 43 percent of total exports, underscoring the concentration risk in Nepal’s export profile.
Electric vehicle imports decline sharply
Electric vehicle (EV) imports fell sharply in the first five months of 2025/26, even as overall car imports edged up.
Customs data show EV imports declined by 23.55 percent to 3,800 units, down from 4,695 units a year earlier. The total value of EV imports stood at Rs 8.95bn which generated Rs 5.64bn in government revenue.
Importers attribute the decline largely to stockpiling at the end of the previous fiscal year amid expectations of tax changes.
In contrast, imports of petrol-powered vehicles surged. Petrol car imports rose by 50.68 percent to 2,801 units from 1,799 units a year earlier, indicating renewed interest in internal combustion engine vehicles—at least in the short term.
Argentina emerges as a major trade partner
Argentina has emerged as Nepal’s third-largest import source in the first five months of the fiscal year, after India and China. Nepal imported goods worth Rs 44.46bn from the South American nation during the period.
The bulk of these imports consisted of crude soybean oil for domestic refineries.
Argentina has emerged as Nepal’s important trade partner in recent years. In 2024/25, Nepal imported Rs 99.3bn worth of goods from Argentina—nearly eight times higher than the Rs 12.38bn recorded in 2023/24.
Crude soybean oil alone accounted for Rs 88.91bn, or nearly 90 percent of imports from Argentina during the year, followed by crude sunflower oil worth Rs 8.89bn.
