…expected to increase by Nu 5.66 billion to Nu 16.28 billion in FY 2024-25

Thukten Zangpo

Bhutan’s external grants inflow decreased after the country’s historic graduation from the least developed country (LDC) status in December 2023.

According to the figures with the finance ministry, the external grants saw a decrease to Nu 10.62 billion in the fiscal year 2023-24, a decrease of Nu 3.74 billion or by 26 percent compared to the previous fiscal year, especially in decline of grants from the multilateral agencies.

The country saw grants inflow of Nu 14.36 billion, Nu 13.58 billion, and Nu 14.88 billion in the fiscal year 2022-23, fiscal year 2021-22, and fiscal year 2020-21, respectively.

These grants consist of project-tied and programme grants from various development partners. The largest portion of the external grants is from the Government of India, consisting of project-tied assistance and small development projects, followed by contributions from the Asian Development Bank, European Union, World Bank, and others.

According to experts, a graduated country loses access to multilateral LDC specific funds.

Compared to fiscal year 2022-23, the external grants from India in terms of project tied assistance and small development projects declined from Nu 6.77 billion to Nu 8.42 billion in fiscal year 2023-24.

At the same time, the grant from multilateral agencies declined to Nu 3.84 billion in fiscal year 2023-24 from Nu 3.34 billion in fiscal year 2022-23. However, the finance ministry has estimated Nu 16.28 billion as external grants for the fiscal year 2024-25.

As of September 30, the first quarter of the fiscal year 2024-25, a grant of Nu 1.48 billion was received of the total estimated.

Of the total grants received, Nu 789.01 million was received from the Indian government, while Nu 688.79 million was received from the other development partners.

According to the finance ministry, the improvement in current account and further projected improvement in the capital and financial accounts results in an increase in gross international reserves, projected to reach USD 783 million at the end of fiscal year 2024-25, sufficient to cover 20 months of essential imports during the critical period.

The reserves projection is expected to improve in the medium term.

While the increase in gross international reserves is welcomed, it is worth highlighting that the accumulation of reserves is not on account of improved efficiency or productivity but rather reliance on the loans and grants which has been one of the core structural issues plaguing Bhutan’s economy.