Thukten Zangpo
Bhutan’s imports are projected to reach Nu 97.7 billion this year, with more than 85 percent coming from India—this is from the finance ministry’s June update.
During the same period, exports are projected to total Nu 41 billion, with over 75 percent destined for India this year.
Bhutan’s heavy reliance on imports to meet domestic demand, coupled with a relatively small export base, will result in a trade deficit of Nu 56.7 billion this year.
Last year, the country’s imports touched Nu 108.42 billion; it was Nu 118.79 billion in 2022.
A trade deficit occurs when the value of imports surpasses that of exports, leading to a depletion of foreign exchange reserves and a rise in external debt. The recent lifting of the moratorium on housing loans, on July 1, followed by the resumption of vehicle imports on August 18, is expected to intensify pressure on the country’s foreign exchange reserves.
Figures from the Royal Monetary Authority indicate that the country’s foreign reserves stood at USD 596.85 million (USD 423.39 million and INR 14.45 billion) as of June, marking a 15 percent decline from March this year.
In the first half of 2024, Bhutan’s import bill reached Nu 56.34 billion, a 12 percent increase compared to the same period last year.
Among the top 10 imports, diesel ranked highest, amounting to Nu 5.6 billion, followed by petrol at Nu 1.9 billion, rice at Nu 1.51 billion, and smartphones at Nu 1.32 billion. This trend highlights Bhutan’s reliance on essential commodities and consumer goods in its import portfolio.
The leading exports during the first half of this year were ferrosilicon, valued at Nu 7.02 billion, followed by boulders at Nu 1.71 billion, and dolomite at Nu 1.26 billion.
Notably, electricity, which once topped Bhutan’s exports to India, saw a decline in revenue, dropping to Nu 2.49 billion in the first six months this year from Nu 3.35 billion in the same period last year.
In contrast, electricity imports surged dramatically, rising to Nu 5.12 billion from Nu 1.88 billion during the same period last year.
Looking ahead, the country’s current account deficit for the fiscal year 2024-25 is projected to improve to Nu 55.86 billion, representing 16.1 percent of GDP, down from Nu 56.32 billion (18.9 percent of GDP) in the fiscal year 2023-24. This expected improvement reflects positive trends in trade and economic adjustments.
The improvement in Bhutan’s current account deficit is primarily attributed to a projected rise in financial and capital accounts, along with an increase in non-hydro exports. The finance ministry noted that in the medium term, both financial and capital accounts are expected to strengthen further, driven by an uptick in loans and grants linked to the implementation of the 13th Plan and ongoing as well as new hydropower projects.
For the fiscal year 2024-25, the ministry anticipates a 32.5 percent improvement in the balance of payments, largely due to increased capital inflows and growth in non-hydro merchandise exports.
However, the ministry also issued a caution regarding the pegged exchange rate regime. With rising investments and income, there is a risk of the economy overheating, which could fuel higher consumption and aggregate demand. If domestic production does not keep pace, it may lead to external imbalances, necessitating close monitoring and timely intervention.