Balance of payments with COTI improve

Service receipts from Countries Other Than India (COTI) skyrocketed to Nu 9,236.5M

Although India remains Bhutan’s primary trading partner in the realm of merchandise goods, Countries Other Than India (COTI) stood as the principal contributor of the service receipts of the economy, accompanied by the substantial trade in merchandise goods. The Current Account Deficit (CAD) with COTI improved by 24.4% from Nu 19,984.6M in the FY 2021-22. This positive change is considering an improvement in trade deficit, and net primary and secondary income receipts.

Trade deficit with COTI improved by 10.2% from a deficit of Nu 17,514M in the previous year. There was an increase in exports by 23.3% from Nu 6,693.3M compared to last year.

Service receipts from COTI skyrocketed to Nu 9,236.5M in the current FY, marking more than 15 times increase from the previous FY. This constitutes 88.1% of the total service receipts of Nu 10,483.7M. This notable upswing is primarily in view of a growth in earnings from travel and transportation services, propelled by the growth in tourism. Bhutan received 9,744 international tourists, contributing to gross earnings (Sustainable Development Fee, accommodation and out of pocket expenditure) of Nu 1,617.6M excluding the travels and transportation related service earnings.

Service receipts from insurance and pension, financial services, telecommunications, and other sectors, although minimal, collectively contributed 20% of the receipts. In contrast to the notable growth in the service receipts, service payments increased to Nu 19,556.7M from Nu 10,047.4M in the previous FY, resulting in further increase in net service payments.

Among the total service payments, personal travel, particularly related to medical and education expenses dominated the service payments portfolio by 56.5% (Nu 11,053.3M) followed by transportation service payments at 34.1% (Nu 6,665.6M).

Education expenses incurred by the aspiring Bhutanese students to study in Australia increased to Nu 8,256.4M in the fiscal year from Nu 1,264.1M of the previous year. Medical expenses also increased to Nu 123.5M from Nu 65.7M.

Unlike with India, primary income balance with COTI recorded a surplus at Nu 1,045.8M in the FY 2022-23 against Nu 196.2M in the previous FY, primarily due to a higher compensation received by Bhutanese working abroad and increased returns on investment by the RMA.

Likewise, the net secondary income receipt also increased by 45.3% at Nu 9,892.9M in the fiscal year. The positive growth in secondary income receipts was marked by an increase in inward workers’ remittances which has predominantly been the largest contributor in the case of Bhutan. Further, minimal outward worker’s remittances were recorded during the review period.

The capital inflows from COTI amounted to Nu 103.4M in the FY 2022-23, a fall from Nu 368.3M in the previous FY, on account of decline in the grants for investment. Similarly, net financial inflows experienced 8.9% contraction amounting to Nu 7,376.9M, driven by the decrease in external loan disbursement from both the bilateral and multilateral partners.

Meanwhile, India being the predominant trading partner and the primary capital investor, Bhutan’s trade deficit with India comprised 74.2% of the overall trade deficit of Nu 60,910.6M in the FY 2022-23.

In the review year, the trade deficit surged by 60.3% from Nu 28,176.2M, owing to an increase in merchandise imports by 16.5% from Nu 79,346.9M, coupled with 7% decline in exports from Nu 51,170.7M in the FY 2021-22. Consequently, the trade deficit stood at Nu 45,177M in the review year.

The heightened imports pertain to a continued import of machineries. Subsequently, the dip in exports was led by 13.2% decrease in hydropower exports to Nu 20,590.8M in the FY 2022-23 followed by 1.6% contraction in non-hydropower exports from Nu 27,460.3M of the previous year.

On the invisibles front, the net service payments with India recorded a marginal growth from Nu 4,685.8M in the FY 2021-22 to Nu 5,512.9M in the FY 2022-23. This uptick was driven by 17.3% growth in service imports amounting to Nu 6,760.1M against the minimal increase of service exports from Nu 1,075M in the FY 2021-22 to Nu 1,247.2M in the FY 2022-23.

Net primary income payments witnessed a marginal increase to Nu 12,941.1M in the FY 2022-23 from Nu 12,108.1M of the previous year due to increase in interest payments on the hydropower loans. Secondary income account with India recorded a deficit at Nu 2,931M during the review year against a surplus of Nu 4,217.8M last year. This net secondary payment is mainly on account of increase in payments dominated by worker’s outward remittances.

On the receipt side, 49.2% drop equivalent to Nu 3,025M was recorded on account of decrease in non-investment budgetary grant inflows by 49.5%. As a result, the Current Account Deficit (CAD) widened by 63.3% (Nu 55,562.1M) during the review year. Capital inflows in the form of budgetary grants for investment increased by 31.2% to Nu 9,699.6M in the current fiscal year.

The hydropower development grants increased more than double to Nu 4,397.9M. The grants for the non-hydropower investments marginally dropped by 9.4% to Nu 5,301.8M in the FY 2022-23. On the contrary, there was an increase in financial inflows by 83.4% to Nu 18,060.6M, which was from an increase in external hydropower loan from Nu 10,283.4M in the FY 2021-22 to Nu 16,095M in the FY 2022-23.

Tashi Namgyal from Thimphu