Import costs rose 12%

As of June this year, the trade deficit widened to 31.95 billion Ngultrum

Thupten Sangpo

According to recently released Bhutan trade statistics, the country’s import bill, including electricity, surged 12% to 56.34 billion Ngultrum in the first six months of this year (January to June) compared with the same period last year.

In the first six months of last year, the country imported goods worth N50.25 billion.

Despite the increase in imports, the trade deficit widened slightly in the year to June, increasing by Nu 618 million to Nu 31.95 billion.

This was mainly due to a 29% increase in exports in the first half of the year to 24.4 billion nunats, up from 18.92 billion nunats in the same period last year.

When imports exceed exports, a trade deficit occurs.

As of June this year, imports from India accounted for 88%, or Ngultrum 49.83 billion, while exports to India stood at Ngultrum 17.29 billion.

Meanwhile, imports from other countries amounted to 6.51 billion nunats and exports to 7.11 billion nunats.

Bhutan’s electricity imports increased significantly in the first half of the year, leading to a wider trade deficit in the second quarter.

Bhutan usually imports electricity during the off-season from December to March, but this year it has been importing electricity until May.

This is mainly attributed to poor hydrological conditions.In real terms, the country imported Ngultrum 5.12 billion worth of electricity in the first five months of this year, compared to Ngultrum 1.88 billion in the same period last year.

The country’s trade deficit would have been reduced to Ngultrum 26.83 billion if not for the increase in electricity imports.

In the first six months of this year, electricity export revenue was N3.35 billion, down from N3.49 billion in the same period last year.

Among the top 10 commodities in terms of import value, diesel topped the list with an import value of Nu 5.6 billion, followed by gasoline (import value of Nu 1.9 billion), rice (import value of Nu 1.51 billion) and smartphones (import value of Nu 1.32 billion).

Meanwhile, Bhutan exported Nu 7.02 billion worth of ferrosilicon, Nu 1.71 billion of boulder and Nu 1.26 billion of dolomite.

Unsustainable import growth rates, inflationary pressures and the depreciation of the Ngultrum against the dollar put pressure on the country’s foreign exchange reserves.

According to a report by the Royal Monetary Authority, Bhutan’s central bank, as of May this year, Bhutan’s total foreign exchange reserves amounted to US$596.85 million, enough to meet 15.44 months of necessary import needs, slightly higher than the constitutional requirement.

The constitution provides that a minimum foreign exchange reserve sufficient to cover at least one year’s basic import expenses must be maintained.

According to the government’s 2024-25 budget presentation, the current account deficit is expected to narrow to 19.1% of GDP, mainly due to an improvement in the trade balance.

The trade deficit is expected to fall to N51.69 billion in the 2023-24 fiscal year, compared with N72.97 billion in the previous fiscal year. This is due to an 8.5 per cent decrease in imports.

The current account balance is expected to improve to 18.9% in 2024-25 and further improve by 4.4% in 2025-26.

Over the medium term, the current account deficit is expected to moderate, mainly due to lower imports as hydropower-related imports gradually decline after the completion of projects.

Meanwhile, imports are expected to grow by an average of 1.2% and exports are expected to grow by an average of 6.9% over the next five years.

With the commissioning of the Nyekahu Hydropower Station in January this year and the expected commissioning of the Punashanhu II Hydropower Station in August this year, hydropower exports are expected to increase significantly.