Bhutan trade deficit to narrow to 16.1 percent of GDP

Bhutan’s trade deficit is projected to improve slightly, narrowing to 16.1 percent of the country’s gross domestic product (GDP) in the fiscal year 2024-25.

This marks a modest improvement from the previous fiscal year’s trade deficit of 17.7 percent of GDP, according to the Royal Monetary Authority’s recent annual report.

The report attributes the improvement to a projected 12.5 percent increase in non-hydro exports, driven by growth in the manufacturing, quarrying, and mining sectors. Non-hydro exports are expected to rise to Nu 41.5 billion, reflecting a significant boost for Bhutan’s economy.

Despite the expected increase in electricity production, hydropower export earnings are projected to decrease from Nu 16.9 billion to Nu 16.77 billion in the fiscal year 2024-25. This is mainly because of higher domestic demand and industrial production.

Conversely, the imports are projected to grow by 5.8 percent to Nu 106.23 billion in the fiscal year 2024-25. This increase will be primarily driven by higher imports of raw materials for construction and manufacturing, including the rise in demand for fuel.

In addition, the implementation of the 13th Plan is expected to further drive imports of machinery and essential goods

In the previous fiscal year 2023-24, both imports and exports with India decreased by Nu 2.24 billion and Nu 3.51 billion respectively. The imports were reported at Nu 90.35 billion and exports at Nu 44.1 billion.

On the other hand, Bhutan’s trade with countries outside India showed promising growth, with exports increasing by 26.1 percent and imports decreasing by 45.6 percent.

According to the RMA, it is expected to see an increase in receipts from tourism related services with the revision of the sustainable development fee and introduction of measures to attract remittances from overseas residents.

However, this will be offset by a greater rise in outward payments for services. As a result, with payments exceeding receipts, the net services payment is anticipated to rise in fiscal year 2024-25.

With the improvement in the trade balance, coupled with increased tourism revenue and inflows of budgetary grants, Bhutan’s current account deficit is expected to decrease to 21.5 percent of GDP—or Nu 56.21 billion—in 2024-25.

Positive capital and financial net flows, including official grants for investment, hydro-related projects, and concessional loans, are expected to rise in the medium term.

In addition, short term borrowings, such as currency swaps and standby credit from India, are anticipated to increase the net incurrence of liabilities.

Despite an expected rise in liabilities, the RMA projects that the capital and financial account surplus will be sufficient to cover the current account deficit over the medium term.

Gross international reserves are forecasted to reach USD 828.9 million by the end of 2024-25, ensuring coverage for 16 months of essential imports.