Nepal's current-account deficit shrank in the first seven months of 2010/11. According to the NRB, the country recorded a balance-of-payments deficit (before official financing) of NRs12.5bn, compared with a shortfall of NRs22bn in the year-earlier period. The current-account deficit stood at NRs6.8bn in mid-February, representing only around one-fifth of the year-earlier deficit, which stood at NRs31.7bn. A rise in net transfers-which were up by 13% year on year in the period, at NRs170.6bn-was the main reason for the narrower current-account deficit. Workers' remittances rose by 11.7% in the period, to NRs138.9bn.

The goods and services balances also showed some improvement. The deficit on the merchandise trade balance narrowed, to NRs174.6bn from NRs180.2bn in the year-earlier period, while net services recorded a deficit of NRs6bn, compared with a year-earlier deficit NRs8.6bn. However, Nepal recorded a smaller income surplus, which fell to NRs3.2bn from NRs6.2bn in the year-earlier period. Meanwhile, the capital and financial accounts recorded a combined surplus of NRs7.2bn in the first seven months of 2010/11, compared with a deficit of NRs5.4bn a year earlier. Direct investment in the country rose to NRs4.8bn from NRs1.4bn. In mid-February Nepal's stock of international reserves (NRB definition) stood at US$3.5bn, equivalent to 7.2 months' imports of goods and services.

On a customs basis, Nepal's merchandise trade deficit narrowed very slightly during the first seven months of 2010/11, to NRs180.7bn, from NRs183.2bn in the year-earlier period. Exports rose by 6.6% year on year, to NRs37.9bn, while imports fell by 0.1% in the period, to NRs218.6bn. Exports to India, Nepal's main export market, accounting for around 70% of total receipts, rose by 10.8% year on year, to NRs25.1bn. However, exports to Nepal's other markets fell by 0.8%, to NRs12.8bn, mainly owing to a 17.3% fall in exports of readymade garments. The decline in imports in the period was despite a 55.9% rise in shipments of petroleum products, to NRs37.2bn. Petroleum products are the main item on the country's import bill.