The Prime Minister, Dr Lotay Tshering, presented the State of the Nation Report to the Parliament on 26 June. As for the state of the country’s economy contained in the report, PM said that the country’s public debt has reached Nu 210 billion (bn) out of which Nu 154 bn constitutes of hydropower loan.
The total accumulated interest for the construction of the Mangdechhu hydropower project estimated at Nu 12.2 bn has been added to the hydro debt stock, therefore, significantly increasing the total debt check.
The non-hydropower debt stock also increased by Nu 6.2 million (mn), 15 percent increase compared to previous fiscal year due to program borrowing disbursements for budget support and on-going projects. The report also states that the debt levels remain within the prescribed threshold of Public Debt Policy 2016. The total public debt, as of end June 2019, is estimated at Nu 209.3 bn, of which Nu 201.3 bn is external debt (104.4 percent of GDP).
Bhutan’s economy grew at the rate of 4.6 percent in the financial year 2018-19 and is projected to grow by 6 percent during the 12th FYP period. Bhutan’s GDP stands at Nu 164.63 bn (2017).
Prices remained stable as indicated by slower increase in Consumer Price Index (CPI) which stood at 2.7 percent in 2018, lower by 2.2 percentage points compared to 2017, mainly contributed by food inflation at 5 percent while non-food recorded a marginal increase of 1.3 percent.
A total of 1,011 Bhutanese have been sent to work overseas between July 2018 and April 2019. The loan deferment for youth under the ‘Learn and Earn program in Japan’ has been provided to continue to learn Japanese language, pursue higher education, enroll into vocational colleges or get full time employment in Japan.
In addition, of the estimated resources of Nu 42.9 bn for FY 2018-19, around 80 percent is from domestic revenue and remaining grants. Tax revenue forms major part of domestic revenue (77 percent), accounting for 13.8 percent of GDP for the fiscal year.
Grants commitment for the fiscal year is Nu 8.6 bn. Internal grants of Nu 323 mn has been received from the Bhutan Health Trust Fund (BHTF) and Bhutan Trust Fund for Environment Conservation to undertake health sector and environment preservation activities. Corresponding with the increase in resources, total outlay has been increased from plan to plan, from Nu 40 bn in the 8th FYP to Nu 310 bn in 12th FYP.
The total outlay for the FY 2018-19 is Nu 46.7 bn of which 62 percent is allocated for current expenditure and 38 percent for capital expenditure. The fiscal deficit estimated at 1.96 percent of GDP is to be met through borrowings from external sources at concessional terms and the remaining from the domestic market.
The State of the Nation Report also cited that the overall balance of payments over the last decade has remained positive averaging at 3 percent of GDP on account of higher capital and financial flows in the form of hydropower disbursements and grants despite persistent negative current account balance, which was -21.8 percent of GDP (2007-08 till 2017-18).
With the completion of major constructions, imports related to hydropower is also expected to be reduced, meanwhile export base would increase with commissioning of MHPA, and Puna I & II in the medium term. In FY 2018-19, the current account balance is estimated to improve to a deficit of 13.4 percent of GDP compared to 18.4 percent of GDP in the previous year.
As of 31 March 2019, the gross international reserves stood at USD 1.082 bn, which is adequate to cover 13.7 months of merchandise imports or 23.7 months of essential imports meeting the constitutional requirement. However, in FY 2016-17 to F 2018-19, the accumulation of reserves was lower as inflow of funds through financial and capital accounts were just adequate to finance the current account deficit.
In the medium term, the reserve is projected to grow by 13 percent on average and reach Nu 124, 430 mn, which is equivalent to USD 1,800 mn by FY 2021-22.