Revised downwards by 4% to Nu. 12,586 million
NGAWANG JAMPHEL
Thimphu
The balance of payment in the current quarter from July to September 2024 update has been revised downwards by 4%, to Nu. 12,586 million from the previous quarter’s estimates of Nu. 13,050 million.
This is as per the macroeconomic situation report of the 1st quarter for the fiscal year 2024-25 released by the Department of Macro-Fiscal and Development Finance under the Ministry of Finance.
The report further states that the downward revision was primarily driven by the worsening trade deficit as a result of anticipated increase in import to Nu. 116 million in the current quarter update, up from previous quarter estimates of Nu. 110 million.
The overall balance of payment in fiscal year 2024-25 is an improvement from the overall balance deficit of Nu. 246 million in fiscal year 2023-24. This is expected to further improve and remain positive in the medium term as a result of anticipated increase in inflow of budgetary grants and external borrowings.
The improvement in current account and further projected improvement in the capital and financial accounts results in increase in gross international reserves, projected to reach USD 783 million at the end of the fiscal year 2024-25, sufficient to cover 20 months of essential imports during critical period.
While the increase in the 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.
With regard to the current account deficit, it is expected to deteriorate by 7%, to Nu. 59,975 million in the current update from fourth quarter estimates of Nu. 55,859 million.
The increase in current account deficit is a result of deterioration in trade deficit by 10%, to Nu. 52,687 million in 1st quarter of fiscal year 2024-25 from the fourth quarter estimates of Nu. 47,906 million.
The worsening trade deficit can be attributed to an increase in goods import projected in 2024-25. Of this, trade deficit with India account for 96% of the overall trade deficit.
The current account deficit in FY 2024-25 is an increase by 3%, from Nu. 58,131 million in FY 2023-24 to Nu. 59, 975 million in FY 2024-25 as a result of deterioration of trade deficit which can be attributed to increase in electricity and goods imports.
The current account balance is expected to improve in 2025-26 mainly on account of improvement in non-hydropower exports, increase in service exports and increased inflow of budgetary grants for 13th FYP.
The quarterly merchandise trade deficit has worsened in this quarter of fiscal year 2024-25 to Nu. 17,158 million from Nu. 14,186 million in fourth quarter of FY 2023-24. This is mainly the result of increased trade deficit with Countries other than India (COTI).
The imports from COTI increased from Nu. 2,783 million in the fourth quarter of FY 2023-24 to Nu. 4,368 million in first quarter of FY 2024-25, an increase of 57%, mainly attributed to the increase in import of base metals and articles of base metal.
On the other hand, export declined by 52%, from Nu. 4,882 million to Nu. 2,321 million mainly attributed to decrease in export of physical foreign currency in cash.
The trade deficit with India improved slightly in the fourth quarter of FY 2024-25. The merchandise trade deficit for FY 2024-25 is projected to increase to Nu 64,666 million. In the medium term, the merchandise trade deficit is expected to worsen.
The FY 2024-25 capital account inflows is 3% lower than the fourth quarter of FY 2023-24 projection due to downward revision in inflow of budgetary grants from India by 6%. The inflows in the capital account in FY 2024-25 is projected to improve to Nu. 18,141 million, a growth of 129 % compared to inflows in FY 2023-24.
This is mainly on account of increase in inflow of grants, of which 83 % is inflow of grants from India. The capital account is expected to improve in the medium term as a result of increase in inflow of grants for implementation of 13th FYP and hydropower development.
The net financial inflow in FY 2024-25 is projected at Nu. 54,421 million, an increase of 8% from fourth quarter of 2023-24 estimates of Nu. 50,237 million.
The upward revision in increase of financial inflows is due to the increase in net other investment from COTI in the form of increase in currency and deposit liabilities. The net inflow in fiscal year 2024-25 is also an increase from FY 2023-24 inflow of Nu. 41,753million.
This increase is mainly on account of increase in external borrowings in convertible currency. In the medium term, the net financial inflow is projected to increase driven by anticipated increase in inflows through external borrowings for hydropower development.
It is worth highlighting that the government targets the Foreign Direct inflows of Nu. 500 billion in the 13th FYP. However, under the current circumstances, majority of financial inflows are on account of public sector borrowings which also includes borrowings by budgetary institutions and State-Owned Enterprises.
