Reserves sufficient to finance 13 months of imports: RMA
Bhutan’s real GDP growth slowed down to 2.1% in 2013 from 5.1 percent in 2012. This was reported as per the monetary policy statement 2015 released by the Royal Monetary Authority. In their report the state of Bhutanese economy the recent developments amongst the major economic sectors, the secondary sector recorded the highest growth at 3.5% followed by the primary sector at 2.9% and tertiary at 0.3%. Sectors that performed relatively well and contributed to the overall growth in 2013 were mining and quarrying (36.2%); electricity and water (10.7%); and agriculture, livestock and forestry. The manufacturing, construction and general government sectors displayed negative real growth in the year. At the sectoral level, the tertiary sector constituted 41.5% of GDP followed by the secondary and primary sectors with 42.3% and 16.2%, respectively.
From an average of 9.6% in fiscal year 2013 -14, Bhutan’s quarterly inflation has fallen to 6.7% in the December quarter of 2014. Inflation has also fallen when compared to 11.3% in the same quarter of 2013. The decline was driven by a significant drop in food inflation from 14.5% in the December quarter of 2013 to 6% in December 2014. Price levels in India as featured by their Whole sale price index (RBI) grew by 0.7% during the fourth quarter of 2014 compared to 7% in the same quarter of 2013. 3.
According to the central bank report Bhutan’s balance of payments, Bhutan’s current account deficit increased from Nu.27.5 billion in fiscal year 2012-2013 to Nu.28.8 billion in fiscal year 2013-14. The current account deficit continues to remain elevated, reaching an estimated 27.6 percent of GDP in fiscal year 2013-14. While the trade deficit increased only marginally in the year, by 1.8 percent, the deficit has persisted at a large level, reaching Nu.22.4 billion or 21.5 percent of GDP in the year. Deficits also persist in the services and primary income accounts, with the services deficit in particular almost doubling from last year, but mainly because of improved coverage of data.
The net inflows in the capital and financial account were more than sufficient to finance the current account deficit. In particular, Indian Rupee denominated hydropower loans increased by 10.5 percent from 14.8 billion to 16.3 billion. Additionally, 9.4 billion, an almost equivalent amount as in the last fiscal year was received in fiscal year 2013-14 as grants for hydropower development. After accounting for other flows in the capital and financial account and the net errors and omissions, against a current account deficit of Nu.28.8 billion, the capital and financial account surplus stood at Nu.31.4 billion with a subsequent increase in reserves by an equivalent of Nu.6.1 billion. At the end of the fiscal year, gross international reserves stood at USD 997.9 million increasing from USD 916.9 million as of end-June 2013. Reserves were sufficient to finance 13.0 months of merchandise imports while covering 56.9 percent of public external debt. Of the total reserves, USD 829.3 million were convertible currency reserves while 10.1 billion were Indian Rupee reserves.
The central bank report further states that Bhutan’s external debt obligations as of December 2014 totaled USD 1.8 billion, increasing by 4.8% from the end of fiscal year 2013-14 as of June 2014. Of the total, 33% were outstanding convertible currency loans and the remaining 67%, Indian Rupee denominated debt which are mostly for hydropower development. Overall debt servicing fiscal year 2013-14 amounted to an equivalent of USD 25.4 million for convertible currency debt and 9.4 billion for Indian Rupee debt. For the first half of 2014/15 (up to December 2014) debt servicing has amounted to USD 15.4 million on convertible currency debt and 1.9 billion on Rupee debt. As of December 2014, Bhutan’s total debt outstanding stood at 111.9% of GDP and the debt service ratio at 27.9%.
On the fiscal front, according to the latest updates from the Ministry of Finance, total revenue including grants increased from 30.4% of GDP in 2012-13 to 33.9% of GDP in fiscal year 2013/14. On the other hand, total expenditure fell from 36.2% of GDP in 2012-13 to 31.1% of GDP in 2013-14 being the first year of the 11th five-year-plan with the focus on mobilizing resources and carrying out preparatory investment works the report further added.