Concerns are mounting as Bhutan’s imports soar

In the first quarter of this year, Bhutan saw a sharp increase in imports, raising concerns about the country’s foreign exchange reserves being depleted.

Latest figures from the Treasury and Customs Departments show a staggering 38 percent increase in imports to a total of Nu 31.69 billion, compared to Nu 22.87 billion in the same period last year.

In percentage terms, the import figures were 6 percent higher compared to 2022 and the previous year.

In 2022, Bhutan’s import bills increased by about 32 percent year-on-year to reach Nu118.79 billion.

Among the top ten imports, the increase in import bills was mainly due to an increase in fuel, which rose to Nu 3.3 billion from Nu 1.71 billion in the same period.

In addition, smartphone imports increased to 635.85 million Nu from 379.12 million Nu, iron products increased to 777.08 million Nu from 357.44 million Nu, and rice imports increased to 751.71 million Nu from 677.19 million Nu well

In contrast, exports to India and other countries fell by about 2.5%. Exports, including electricity, fell from Nu 9.75 billion to Nu 9.52 billion in the same period. Notably, ferro-silicon exports, one of the country’s top exports, fell about 23 percent, totaling Nu 3.73 billion in the first quarter of this year, compared with Nu 4.85 billion in the same quarter last year.

In addition, due to poor hydrology, Bhutan’s electricity export to India collapsed by about 70 percent, from Nu 721.84 million to Nu 218.51 million.

The rise in imports coupled with falling exports has widened the country’s trade deficit to Nu22.07 billion in the first three months of this year, up by Nu8.95 billion from the same period last year.

This trade deficit, where the value of imports exceeds the value of exports, is having a serious impact on Bhutan’s foreign exchange reserves. The unsustainable rate of import increases, inflationary pressures and the devaluation of the ngultrum against the USD further contribute to the decline in foreign exchange reserves. These reserves are vital for financing imports, meeting international financial obligations and dealing with sudden movements of capital.

As of March 31, Bhutan’s debt in Indian rupees was 159.16 billion and in convertible currency USD 988.69 million.

Although the government has imposed a moratorium on imports of non-essential vehicles since August last year, foreign exchange reserves have fallen from $736 million in August to $698.3 million in March this year.

In order to conserve foreign exchange reserves, the government suspended all housing loans from June 9 to December 31 of this year, including loans for building houses and hotels.

According to the Asian Development Bank, if reserves continue to decline by 2 percent a month as in 2022, Bhutan’s reserve position would violate the constitutional mandate to maintain 12 months’ worth of essential imports.

The revised key import values ​​for 2023 are US$603 million for the normal period and US$464 million under critical circumstances.

With Bhutan relying heavily on imports for more than 80 percent of its goods, insufficient reserves put the country at risk of being unable to pay for essential imports.

Should the country’s reserves fail to improve, further moratoria or bans could be imposed, potentially targeting imports of furniture, processed meat and groceries, junk food, alcohol and LED televisions.

The urgency to address the issue and strengthen foreign exchange reserves is paramount to ensure the country’s economic stability and ability to meet essential import needs.

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