ADB presents an improving economic outlook for Bhutan

The government has implemented 5% green tax on fuel and 5% tax on telecom services provided by the telecom operators. The government has lifted ban of alcohol, furniture and vehicles by revising the existing sales tax, custom duty and green tax on various types of vehicles.

The other tax measures include exemption of small and micro business in rural areas from business income tax, to encourage and promote growth of small scale business.

Growth in the Gross Domestic Product (GDP) of Bhutan in Fiscal Year 2014 (ended 30 June 2014) is estimated at 6.0%, as projected in the Asian Development Outlook (ADO) 2014 in April, marking a recovery from 4.2% growth a year earlier. Hydropower sales grew by nearly 9%, and tourism continued to expand with earnings increasing to $66 million, or 3.5% of GDP.

To support the economy, a stimulus package worth Nu 500mn, financed by India, was started. The funds are being made available to banks for priority lending to potential growth sectors, such as small and cottage industries.

Bhutan’s real Gross Domestic Product (GDP) growth decreased to 2.1% in 2013 compared to 5.1% in 2012, according to National Accounts Statistics of the National Statistics Bureau (NSB).

Inflation measured by the year to year change of the consumer price index increased to 8.6% in the second quarter of 2014, from 5.5 percent in the same quarter of 2013. Bhutan’s current account deficit stood at an estimated 28.1% of GDP, according to the Balance of Payments estimates for FY 2012/13, whereas increasing from 23% of GDP in FY 2011/12.

The deficit in goods and services moderated from 28.7% of GDP in FY 2011/12 to 25.5 % in FY 2012/13, although still remaining at high levels. Despite improvements in the goods and services account, the current account deficit increased in FY 2012/13 because of much reduced inflows of budgetary grants (47.7% decrease over the previous fiscal year) and much increased primary income debits. However, net inflows in the capital and financial account were more than sufficient to finance the current account deficit. After accounting for other flows in the capital and financial account and the net errors and omissions, against a current account deficit of Nu 27.9bn, the capital and financial account surplus stood at Nu 33.9bn, As a result, the overall balance was positive at Nu 9.2bn.

Consequently, Bhutan’s gross international reserves at the end of the FY, as of June 2013, increased to USD 916.9mn from USD 674.3mn in June 2012. As of the quarter ending June 2014, the reserves stood at USD 997.9mn. Of the total reserves, USD 829.3mn was convertible currency reserves and INR10.1bn in Indian Rupee reserves.

The country’s total outstanding external debt as of June2014 stood at USD 1.8bn. Of the total, 67.9bn (USD 1,129.4 mn equivalent) were Indian Rupee debt and USD 629.5mn were outstanding convertible currency debt.

The Government of India remains Bhutan’s leading creditor with an outstanding debt of 66.6bn or an equivalent of USD 1113.5mn, followed by the ADB at USD 259.8mn and the World Bank at USD 182.3mn. According to the revised budget estimates for the FY 2013/14, the total budget allocation stood at Nu 37.8bn, higher by Nu 2.9bn as compared to the 2012/13 actual budget outlay. This increase was mainly due to a surge in both capital and current expenditures.

The sector-wise performance of the economy, the secondary sector recorded the highest growth at 3.5%, followed by the primary sector and tertiary sector at 2.9% and 0.3% during the year.

Growth in the secondary sector recorded the highest in 2013 to 3.5% because of high growth in the mining and quarrying (36.2%); followed by electricity and water supply sub-sector (10.7%). Conversely, growth in the construction sub-sector declined significantly to negative 2.1percent in 2013 from 18.2% compared to the previous year. The overall performance of the primary sector improved in 2013 because of the growth in the crops and livestock sub-sector by 3.9% (2.4% in 2012) and 2.4%, (1.3% in 2012).

Total electricity sales (export and domestic) for the quarter ending June2014 amounted to Nu 2, 442.7mn against Nu 359.0mn in 2013.

The total assets and liabilities of commercial banks increased to Nu 80.5bn as of June 2014 from Nu 71.6bn as of the same period last year, recording a growth rate of 12.5% during the review quarter. Of the total deposit liabilities of the commercial banks (Nu 57.7bn as of June 2014), 57.3% were held by individuals, 14.7% were held by the government corporations, and the remaining by other sectors of the economy.

The overall trade deficit stood at 22.2% of GDP in FY 2012/13. The external debt as of June 2014 stood at USD 1.8bn. Of the total, 67.9bn (USD 1,129.4mn equivalent) were Indian Rupee debt and USD 629.5mn were outstanding convertible currency debt.

The Government of India remains Bhutan’s leading creditor with an outstanding debt of 66.6bn or an equivalent of USD 1113.5mn, followed by the ADB at USD 259.8mn and the World Bank at USD 182.3mn. Corresponding to the positive overall balance, the country’s gross international.

The reserves increased from an equivalent of USD 674.3mn to USD 916.9mn between June 2012 and June 2013.

The sale of an additional USD 200mn for Indian Rupees in June 2013, to position for upcoming Rupee payment obligations and given the strengthening of the US Dollar against the Rupee, resulted in an increase in the Indian Rupee reserve position from 1.5bn to 11.4bn.

During the FY 2013/14, the first year of the11th FYP, the total expenditure outlay increased by 8.2% to Nu 37.8bn over the 2012/13 actual budget. This increase was mainly due to the growth in capital expenditure and current expenditures by10.2% and 6.4%, respectively.

On the total resource front, total revenue including grants increased from Nu 30.7bn in 2012/13 to Nu 33.1bn in 2013/14, mainly on account of an increase in both program and project-tied grants.

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