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Marginal improvement shown

Exports decreased by 26 percent, while imports increased by three percent

Balance Of Trade: Bhutan’s overall balance of trade for the fiscal year 2011-12 improved slightly, compared to the previous fiscal, mainly on account of decreased imports from India.

The improvement would have been much more pronounced, if not for decreasing exports to countries other than India.

The central bank’s recently published annual report states, due to a weak external environment, and slowing down of investment and consumption in regional economies, Bhutan’s export to other countries decreased by 26 percent, while at the same time imports increased by three percent.

This was coupled with decrease in capital accounts to other countries by around 75 percent.  Capital account refers to inflows related to sale of nation’s assets to other countries.  Foreign direct investment inflows also declined by 67.7 percent.

Bhutan’s hydropower export also decreased from Nu 10.4B to Nu 9.8B in the last fiscal year due to lower generation.

The RMA annual report records a negative balance of Nu 6.2B with countries other than India, compared to the previous fiscal year.

Magnetic discs and media still continue to be the top export commodity for Bhutan, constituting around 64 percent of the total exports to third countries.

It was valued at Nu 3.3B in the 2011-12 fiscal year.  Bhutan’s top export destination after India is Hong Kong, where Bhutan exports magnetic discs.

In terms of imports, South Korea is the top next import destination after India.  Bhutan imports copper wire from South Korea.

In March last year, the government issued a notification, stating that software exports from Bhutan will not be issued the certificate of origin, in effect closing down this industry that came up in the first place to earn hard currency to import copper and palm oil from third countries.

The notification was issued, since it was felt that the industry contributed to rupee outflow, as the software came from India, and the copper and palm oil were sold to India.

There were also allegations that the industry was serving as a conduit to launder unaccounted for money from India, by using the Bhutanese banking channel, for which those in the industry got a decent commission that ran into millions.

Meanwhile, trade deficit with India in absolute terms decreased from Nu 15B to Nu 14B, according to the annual report.  This was attributed to a 3.8 percent increase in exports and a decrease in imports by 0.4 percent.

The annual report does not specify as to what could have led to decreasing imports in the 2011-12 fiscal.

The year, however, saw restrictions to rein in rupee outflows, especially on vehicles and construction materials.  The restrictions were put in place in March 2012.

The improvement in the balance of payments was also contributed by remittances from non-resident Bhutanese workers.

NRB remittances through the banking channel more than doubled from Nu 417M to Nu 848M in 2011-12.  A large share of the remittances came from the United States and Australia.  On the other hand, outward worker’s remittances, which mostly includes expat construction workers was Nu 1.8B during the 2011-12 fiscal.

Meanwhile, Bhutan’s total external debt was recorded at USD 1.4B (Nu 77B), of which 84 percent is on hydropower, and the remaining 15.4 percent on Rupee loans taken from Indian commercial banks, including the State Bank of India, Punjab National Bank and the government of India line of credit.

With the gross domestic product at Nu 49B this year, Bhutan’s debt to GDP is at a high of 90 percent of gross domestic product.

By Nidup Gyeltshen

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