Nepal and Bangladesh share a history of goodwill, with diplomatic ties stretching back to 1972.[1] Despite their close geographic proximity, separated by a mere 22-kilometer stretch of Indian territory known as the “Siliguri Corridor,” their economic relationship has remained a fraction of its true potential. For too long, bilateral trade has been hindered by a web of bureaucratic, infrastructural, and regulatory challenges, preventing it from flourishing. The time has come for both nations to move beyond the traditional narrative and embrace a deeper, more dynamic partnership built on economic integration.
The current state of trade reflects this untapped potential. In the fiscal year 2022-2023, the total trade volume hovered around a modest USD 49 million. The balance is heavily skewed in Bangladesh’s favor, with its exports to Nepal, including pharmaceuticals, readymade garments, and jute products, valued at roughly USD 44.33 million. In stark contrast, Nepal’s exports to Bangladesh, which are primarily agricultural goods like lentils, spices, and medicinal herbs, amounted to a mere USD 4.34 million.
The Roadblocks to a Thriving Partnership
The reasons for this trade imbalance are numerous and were a central theme of recent roundtable dialogues in Kathmandu and Dhaka co-organized by the Centre for Policy Dialogue (CPD) and Nepal Economic Forum (NEF), which brought together policymakers and experts from both nations.
A major barrier is the high tariffs and other duties and charges (ODCs) levied on Nepali goods by Bangladesh. As a report from South Asia Watch on Trade, Economics and Environment (SAWTEE) noted, these tariff and para-tariff barriers are the primary constraint on Nepal’s exports. A proposed Preferential Trade Agreement (PTA) is being negotiated to address this, but it faces its own hurdles. For instance, Nepal is seeking concessions on 75 products, while Bangladesh has so far only offered a preferential rate on 20.7% of them. The negotiations are further complicated by a geopolitical challenge: any concessions Nepal grants must also be extended to India.[2]
Beyond tariffs, logistics and infrastructure pose a formidable challenge. The lack of direct connectivity between the two countries means that most trade must pass through India, which adds significant time and cost to transactions. While a transit route via the Kakarbhitta-Phulbari-Banglabandha corridor exists, it is underutilized due to cumbersome border procedures. This has led to an astonishingly high trading cost for Nepal, which stands at an estimated 270%. Simply put, inefficient infrastructure makes trade expensive and slow, hindering its growth.
Unlocking the Potential: New Avenues for Collaboration
Despite these challenges, the outlook is far from bleak. The conversations between experts, including those from the Nepal Development Research Institute (NDRI), CPD, NEF, and SAWTEE, underscore the immense opportunities that lie ahead.
The single biggest game-changer is power trade. Nepal, a land rich in hydropower potential, and Bangladesh, a nation with a rapidly growing energy demand, are perfect partners. A pilot project to export 40 MW of electricity from Nepal to Bangladesh is already in the works, but the long-term goal is much more ambitious.[3] With a target of trading 9,000 MW by 2040, a full-fledged power trade agreement could not only meet Bangladesh’s energy needs but also provide a stable, long-term source of revenue for Nepal.
Diversification of products and industries is another key area. The current trade basket is narrow, but both nations have products with significant untapped export potential. Nepal could increase its exports of high-value agricultural products like large cardamom and ginger, as well as industrial goods like palm oil and yarn. Bangladesh, in turn, could explore investments in Nepal, particularly in sectors that complement its own strengths, such as the garment industry. A strategic partnership could see Bangladeshi companies invest in Nepal to utilize its abundant hydropower for manufacturing, creating a joint industrial value chain.
Enhanced connectivity and people-to-people exchanges are also critical. While physical transit remains an issue, both countries can capitalize on other forms of connectivity.[4] Increasing the number of flights between Dhaka and Kathmandu from the current 13 per week would boost tourism and business exchanges. There’s also immense potential for educational exchanges, with many Nepali students already studying medicine and engineering in Bangladesh, and a growing opportunity for Bangladeshi students to pursue degrees in hospitality and management in Nepal. Digital finance presents another new frontier, with discussions around cross-border payment platforms to ease business and tourism transactions.
Climate Change Cooperation is a new and crucial area of collaboration. Nepal, with its expertise in mountain ecosystems and community-based adaptation strategies, can partner with Bangladesh, a country facing significant climate risks in its delta region. By conducting collaborative research and presenting a unified position at international forums like Conference of the Parties (COP) summits, the two nations can not only address the impacts of climate change in their respective regions but also position themselves as leaders in climate resilience and adaptation on the global stage.
A Shared Path to Prosperity
As both Nepal and Bangladesh prepare to graduate from Least Developed Country (LDC) status in the coming years, the nature of their relationship will naturally shift from aid to trade and investment. This transition presents a perfect opportunity to move past political hurdles and focus on economic integration, as urged by H.E. Mr. Ghanshyam Bhandari, the Ambassador of Nepal to Bangladesh.[5]
The policy recommendations from the roundtable are clear: finalize a meaningful PTA that addresses ODCs, upgrade infrastructure and logistics, and engage with India to find better transit solutions. By working together on these fronts, Nepal and Bangladesh can build a dynamic economic partnership that not only benefits their own people but also contributes to the greater prosperity of the South Asian region. It’s a partnership based not just on shared history and culture, but on a shared vision for a more prosperous future.
Dr. Shikha Thapa Magar is a Nepal-based sustainable agriculture expert and Executive Director at NDRI, holding a Ph.D. in Agronomy from Hebei Agricultural University. Her work spans climate-smart agriculture, value chains, gender-responsive climate action, and disaster risk management, with leadership roles across initiatives supported by UN Women, ICIMOD, Practical Action Consulting, and the SCOLAR Network. She also serves as an Adjunct Assistant Professor at HICAST, a peer reviewer for international journals, and a member of the NRNA Agriculture Committee, bridging research, field practice, and policy.
