Every year, thousands of Nepali students go abroad for higher education, exchanging billions of rupees in foreign currency as they leave the country. This educational investment has become a major factor in Nepal’s growing trade deficit in the service sector. Recent government data shows that this has overshadowed the income generated from tourism and the rapidly developing information technology service exports.

In the fiscal year 2015/16, Nepal had a trade surplus of Rs 9.85 billion. At that time, service exports amounted to Rs 136.47 billion and service imports to Rs 128.62 billion. The situation has changed significantly in nearly a decade. In 2024/25, service exports increased to Rs 238.66 billion. However, service imports cost Rs 329.60 billion. Currently, Nepal’s service trade deficit stands at Rs 90.94 billion, with the largest share coming from the import of education services (foreign study).

In 2024/25 alone, Nepal spent Rs 138.48 billion on education services. Such expenditure has increased by an annual average of about 18 percent over the past three years. In contrast, during the same period, income from education service exports totaled only Rs 3.89 billion, with an annual growth rate of 2 percent. As the number of Nepali students enrolling in foreign universities continues to rise, their regular fees, living expenses, and other costs have also steadily increased. This has made education the leading imported service in Nepal.

While the import of education services continues to widen the trade deficit, the growth seen in information technology service exports offers some hope. Nepal is earning foreign currency through the export of services based on software development, business process outsourcing, digital freelancing, web and mobile application development, graphic design, and other IT-based services. However, there is no comprehensive official government data available on this.

In 2024/25, Nepal earned Rs 22.33 billion from the export of telecommunications, computer, and information technology services. This accounted for 9.36 percent of total service exports. Experts in the field claim that the actual figure is even higher. According to a study published by the Institute for Integrated Development Studies (IIDS) in 2022, Nepal exported IT services worth Rs 67.93 billion. Representatives from the sector say that exports have increased further since then. However, since freelancers and software companies often receive payments for service exports through international platforms, foreign bank accounts, or third-country companies rather than Nepal’s formal banking system, most of the income from service exports is not counted in official statistics.

Gaurav Raj Pandey, president of the Nepal Association for Software and IT Services Companies (NAS-IT), says that most of the foreign currency earned by IT professionals is counted as remittance rather than income from service exports.

“The IT sector is growing annually by 15 to 20 percent. Remuneration is also increasing by about the same percentage,” Pandey said. Since many freelancers receive payment outside Nepal’s banking system, current official statistics understate the true size of Nepal’s IT service exports, as even government reports have noted. The report states that as Nepal continues to produce a significant number of digital professionals and as global demand for IT outsourcing services rises, Nepal should capitalize on this to reduce the service trade deficit.

If income from IT service exports could be brought in through formal channels, it is expected to significantly strengthen Nepal’s foreign currency reserves and reduce dependence on traditional service exports such as tourism. There is intense demand and competition in the international market for software development, web and mobile applications, graphic design, digital marketing, business process outsourcing, data processing, and freelancing services. As an increasing number of Nepali youth acquire digital skills and global demand for remote services rises, the IT sector is becoming a major source of service exports.

The report points out that with policy reforms related to foreign exchange, a streamlined international payment system, and tax incentives, IT-based services could become Nepal’s largest service export industry. The service sector currently contributes 62 percent to Nepal’s total gross domestic product. In 2024/25, the service sector’s share of the country’s total foreign trade was 21.44 percent. According to the report, as Nepal graduates from the category of least developed countries, the preferential market access, export duty exemptions, and development assistance it currently enjoys will gradually decrease.

“In this context, rather than relying solely on limited and traditional goods exports, Nepal’s national economic strategy should be based primarily on high value-added, knowledge-based, and competitive service exports,” the report states. The report identifies tourism, electricity, construction, and information technology as the main service export sectors for the future. It notes that if the new international airports in Pokhara and Bhairahawa, the expansion of hydropower exports to India and Bangladesh, and the increased international competitiveness of Nepali construction firms can be achieved, it will help diversify the service export sector.

The expansion of energy trade is expected to make a significant contribution to service exports, increase foreign currency earnings, and boost Nepal’s participation in the regional energy market. Construction is also seen as another promising export industry. Rapid infrastructure development over the past two decades has helped develop the capacity and experience of Nepali construction companies, engineers, technicians, and skilled workers. However, there is still a need to further strengthen institutional capacity to complete large and complex projects. Several Nepali construction firms have already won international tenders and there are examples of projects completed abroad.