Despite a general slowdown in the country’s economy, the Royal Monetary Authority (RMA) projects a favorable growth in Gross Domestic Product (GDP) of the country in the present and next fiscal years.
Bhutan’s GDP is expected to reach 10.6% at the end of the current fiscal and 12.5% at the end of the next fiscal.
During the year inflation is expected to be highly uncertain subject to the change in price of food and fuel in India that will have spill over effects on the price of goods and services across the board.
In the second quarter, this year, Inflation reached the highest since 2003 at 13.5% driven mainly by the rupee shortage problem that eventually pushed the price of food items and fruits.
According to the NSB, the price of vegetables increased by about 41% while fruit prices increased by more than 56%.
The increase in prices of goods and services is expected even more during the current and next fiscal years.
In April 2012 the International Monetary Fund released its World Economic Outlook stating that hike in price of crude oil in the global oil market is expected to continue.
Further, with more than 85% of the crude oil in India being imported, the Reserve Bank India has also cautioned the country against an expected rise in global price of crude oil. And Bhutan is no exceptions as Bhutan’s fuel requirement are met from Oil dealers in India.
Meanwhile the RMA expects the country’s current account deficit to increase to an average of 27.5% of GDP during the current fiscal mainly comprising the trade deficit of the country.
The RMA mentions that sustained and large deficits in the current account could impact long-term growth prospects of the country.
It says that in addition to the ongoing construction works on Dagachu, Punatsangchu I and II, and Mangdechhu hydropower projects, the construction works on six new power projects which are expected to commence from the next fiscal year is expected to substantially increase commodity imports of the country.
Trade deficit of Bhutan is expected to improve to 24.3% of GDP as a result of the impact of recent policy measures undertaken to address the external imbalances with India.
As a measure to control the outflow of foreign currencies in the form of imports, the government has banned the import of unessential commodities while the RMA has instructed commercial banks to suspend its housing and vehicle loan schemes.
The RMA expects external grant support, both for current and capital expenditures, to play a major role in offsetting the deficits in the trade and invisible accounts.
External grant support (current and capital) will continue to play a significant role in Bhutan’s BOP partially offsetting the deficits in the trade and invisibles accounts.
Bhutan’s overall balance of payment is expected to be positive with anticipated surpluses in the capital and financial accounts, although a deficit in the current account is expected.
Official inflows in the capital and financial account in the form of capital transfers like grants for hydropower development and external loans of the RGOB are expected to continue to finance the current account deficit.
This implies a growth in the country’s gross international reserves which is projected at US $ 989.9mn by the end of the projection period.
On the domestic front, the RGOB anticipates a fiscal deficit of 4.3% of GDP at the end of the current fiscal which is expected to decrease to 3.2% by the end of the next fiscal year.
Domestic revenue during the year is expected to average 20.2% of GDP while capital expenditure is expected to average 16.9%.
August 16, 2012 at 3:06 pm
Rupee crunch was supposed to eased with the onset of monsoon and increase in hydro money. Where is the improvement? The bans are all in place still.
August 11, 2012 at 11:40 pm
Dont think banning import of vehicles is a long term solution. Govt gotta bring in alternative solution. You cannot keep the ban for long time.