Bhutanโs Current Account Deficit (CAD) showed a modest improvement in FY 2024/25, narrowing slightly from Nu 53,975.2 million in FY 2023/24 to Nu 52,837.5 million. As a share of GDP, the deficit fell sharply from 32.3% to 17.4%, reflecting a better balance between external inflows and outflows.
According to the Royal Monetary Authority (RMA), the improvement was supported by robust inflows in capital and financial accounts, particularly budgetary grants and loan disbursements for hydropower and development projects. As a result, Gross International Reserves (GIR) rose to USD 800.3 million, sufficient to cover 15.9 months of essential imports.
While the overall current account remained in deficit, stronger performance in the services and secondary income accounts helped mitigate pressures from a widening trade gap and rising primary income outflows. The trade deficit, however, deepened to Nu 71,242.2 million (40% of GDP) due to higher imports of merchandise goods, electricity, and non-monetary gold, while export growth remained modest. Electricity imports totaled Nu 2,585.8 million and non-monetary gold Nu 4,036 million, highlighting persistent sector-specific pressures.
The net services surplus improved markedly to Nu 7,881.9 million, up 57.3% from the previous year. Service credits rose 20.9% to Nu 28,944.5 million, largely driven by recovery in tourism and allied sectors supported by policy reforms, promotional measures, and market diversification. Service debits increased 11.3% to Nu 21,062.7 million, mainly due to higher outflows for construction, professional, and technical services. The improved services balance helped partially offset the merchandise trade deficit.
Meanwhile, the primary income account recorded a net outflow of Nu 14,142.2 million, slightly higher than the previous year, due to rising interest payments on external loans and income payments on investments. The secondary income account, however, posted a substantial increase to Nu 24,647 million, propelled by workersโ remittances of Nu 12,554.5 million and increased grants of Nu 3,507.4 million. The surge in remittance inflows, coupled with a decline in outflows, provided a significant buffer against the widening CAD.
The capital account stood at Nu 12,007.2 million, almost double the previous year, largely due to higher budgetary inflows from bilateral and multilateral partners supporting both hydro and non-hydro projects. Hydropower-specific grants rose to Nu 2,175 million from Nu 510 million, reflecting the initiation of new projects financed through loans, grants, and equity contributions.
The financial account (excluding reserve assets) recorded a net inflow of Nu 62,015.1 million, a substantial increase from Nu 23,086.2 million, largely driven by loan disbursements for hydropower and other development initiatives. Other investments contributed Nu 52,611.4 million, while net direct investment increased to Nu 9,403.7 million, though much of this rise reflects improved data coverage rather than a dramatic surge in foreign direct investment.
Overall, the combined effect of strong capital and financial inflows offset the elevated CAD, resulting in a positive overall balance of Nu 22,977.4 million. The GIR increased significantly from USD 624.1 million to USD 800.3 million between June 2024 and June 2025, with USD 629.8 million in convertible currency and INR reserves of 14,593.5 million. The ratio of international reserves to external debt stood at 22% as of June 2025.
Trade and current account balances with India remained under pressure. The CAD with India widened slightly to Nu 67,109.4 million from Nu 66,140.1 million, while the trade deficit increased to Nu 50,874.6 million as imports surged to Nu 107,282.4 million, outpacing export growth to Nu 56,407.9 million. Despite these pressures, higher grants and modest export growth helped mitigate external imbalances.
For countries other than India (COTI), the current account improved to Nu 15,256.4 million, supported by a services surplus of Nu 10,935.6 million, reflecting stronger tourism recovery, and higher secondary income inflows of Nu 24,351.2 million, driven by remittances and budgetary grants. The primary income account contributed a net surplus of Nu 337.3 million, bolstered by increased interest earnings.
Capital and financial accounts for COTI also strengthened, with net inflows rising to Nu 2,133.8 million and Nu 8,133.8 million, respectively, largely from budgetary grants and loan disbursements for development projects. These inflows highlight Bhutanโs continued reliance on external financing to support growth and infrastructure development.
In summary, while Bhutanโs CAD remains elevated, the slight narrowing in FY 2024/25 demonstrates resilience in the external sector, driven by strong capital inflows, rising remittances, and recovery in services. Persistent trade deficits and primary income outflows, however, underscore the ongoing structural challenge of balancing imports with domestic export growth. The strengthened reserves and inflows provide a buffer, ensuring continued macroeconomic stability and financing capacity for critical development projects..
Tashi Namgyal
From Thimphu
