Nepal’s trading cost is 44 percent higher than those of member countries of the South Asian Free Trade Area (SAFTA), according to a new government report highlighting deep-rooted structural challenges in the economy.
The Ministry of Industry, Commerce and Supplies (MoICS) unveiled the Nepal Trade Policy Review 2025 on Monday, identifying high remittance dependency, sluggish foreign direct investment (FDI), and weak infrastructure as major barriers to achieving middle-income status. The report estimates logistics costs—excluding customs duties—at 30–35 percent of Nepal’s GDP.
Compared globally, Nepal’s trading costs are 38.2 percent higher than ASEAN countries and 70.8 percent higher than major economies such as China, the European Union, Japan, and the United States. The report attributes this to the country’s landlocked geography, high transportation costs, weak supply chains, and inadequate infrastructure.
Nepal’s economy recorded a modest growth of 2.7 percent last year. Although growth has remained positive in recent years (excluding the COVID-19 period), it has fallen short of expectations. Per capita income stands at around $1,434, while the trade-to-GDP ratio has declined to approximately 41 percent.
The report underscores Nepal’s heavy reliance on remittances, which account for about 25 percent of GDP. While remittance inflows have helped offset the trade deficit, they pose long-term risks to economic sustainability.
Despite policy reforms aimed at economic recovery, challenges persist in boosting production, attracting investment, and expanding exports. Nepal’s merchandise exports remain limited at around $1.15 billion, with textiles, food products, and metal goods as key exports—largely destined for India. Major imports include fuel, machinery, iron and steel, and vehicles, again dominated by trade with India.
Trade deficits continue in both goods and services, driven by weak production capacity, inadequate infrastructure, and limited integration into global value chains. While remittances help maintain the current account balance, they are not a sustainable long-term solution.
The report also notes Nepal’s slow progress in attracting FDI despite reforms such as the Foreign Investment and Technology Transfer Act, the Industrial Enterprise Act, and the introduction of an automatic approval route. These measures have yet to significantly boost actual investment inflows.
To improve trade efficiency, Nepal is working on transit agreements with India, China, and Bangladesh, alongside regional cooperation initiatives like SAFTA, BIMSTEC, BBIN, and SASEC to enhance connectivity and reduce costs.
Although the government has prioritized export diversification, value chain development, logistics improvements, and market expansion under its ‘Smooth Transition Strategy,’ weak implementation has hindered expected progress, the report concludes.
