Trade deficit widens to Nu 31.95 billion as of June this year

Thukten Zangpo

The country’s import bill, including electricity, shot up by 12 percent to Nu 56.34 billion in the first six months (January to June) of this year compared to the same period last year, according to the Bhutan Trade Statistics released recently.

Last year, the country imported Nu 50.25 billion worth of goods in the first six months.

Despite the increase in the import figure, the trade deficit widened negligibly by Nu 618 million to Nu 31.95 billion as of June this year.

This was mainly because of an increase in exports by 29 percent amounting to Nu 24.4 billion in the first six months, up from Nu 18.92 billion during the same period last year.

Trade deficit occurs when the value of imports exceeds the value of export.

Import from India accounted for 88 percent or Nu 49.83 billion while exports to India was recorded at Nu 17.29 billion as of June this year.

At the same time, the import bill from other countries was Nu 6.51 billion against exports of Nu 7.11 billion.

Bhutan’s import of electricity significantly increased during the first six months, widening the trade deficit in the second quarter.

Bhutan usually imports electricity during the lean season from December to March but this year, electricity was imported until May.

This was mainly attributed to poor hydrology.In substantial terms, the country imported Nu 5.12 billion worth of electricity in the first five months this year, compared to Nu 1.88 billion during the same period last year.

Had it not been for the increased electricity import, the country’s trade deficit would be reduced to Nu 26.83 billion.

The revenue from export of electricity stood at Nu 2.49 billion in the first six months this year, down from Nu 3.35 billion in the same period last year.

Among the top 10 goods imported, diesel topped the import list, worth Nu 5.6 billion, followed by Nu 1.9 billion worth of petrol, Nu 1.51 billion worth of rice, and Nu 1.32 billion worth of smartphones.

At the same time, Bhutan exported Nu 7.02 billion worth of ferrosilicon, Nu 1.71 billion boulders, and Nu 1.26 billion dolomite.

The unsustainable pace of increase in imports, inflationary pressure and depreciation of Ngultrum against the USD has been putting pressure on the country’s foreign reserves. 

According to the central bank, Royal Monetary Authority’s report, Bhutan’s total external reserves stood at USD 596.85 million as of May this year, adequate for 15.44 months of essential imports, barely above the constitutional requirement.

The constitution mandates that a minimum foreign currency reserve adequate to meet the cost of not less than one year’s essential import must be maintained.

According to the government’s budget report 2024-25, the current account deficit is expected to contract to 19.1 percent of gross domestic product, mainly on account of improvement in the trade balance.

The trade deficit is projected to reduce to Nu 51.69 billion in fiscal year 2023-24 compared to Nu 72.97 billion in the previous year. This is because of a reduction in imports by 8.5 percent.

For the fiscal year 2024-25, current account balance is estimated to improve to 18.9 percent and further improve by 4.4 percent in fiscal year 2025-26.

In the medium term, the current account deficit is expected to moderate mainly on account of decline in imports, as hydro-related imports decline gradually after completion of the projects.

At the same time, imports are estimated to grow at an average of 1.2 percent in the next five years while exports are expected to grow at an average of 6.9 percent.

With the commissioning of the Nikachhu hydropower plant in January this year and Punatshangchhu-II expected to commission in August this year, hydropower export is expected to grow significantly.

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