Import surge drives up nine-month trade deficit to Nu 13.7bn

Exports clocked the Nu 8.8bn mark in September for nine consecutive months. However, the trade deficit dropped by Nu 1.8bn compared to the second quarter of this year

The country’s trade deficit is growing sharply owing to a massive increase in imports compared to exports and the rise in prices of almost all kinds of products, such as food items and fuel in the market.

In just nine months this year, the country has imported goods (including electricity) worth more than Nu 34.2bn and exported goods valued at Nu 20.4bn, resulting in a trade deficit of about Nu 13.7bn.

As per the quarterly provisional trade statistics published by the ministry of finance, the country’s trade balance for the first quarter (January-March) was Nu 13.8bn in the red, Nu 21.2bn deficit in the second quarter (April-June) and another deficit of Nu 13.7bn in the third quarter.

In total, the quarterly provisional balance of trade, comes close to Nu 48.7bn in the red.

Trade deficit is an economic measure of a negative balance of trade, meaning imports exceeding exports. A country experiences a trade deficit or negative trade balance if its import bill is more than its earnings from export.

However, the trade deficit narrowed in the third quarter compared to the second quarter because the country exported electricity worth around Nu 11.6bn, compared to Nu 6bn in the second quarter and Nu 721mn in the first quarter. Had it not been for the electricity export, the country could have experienced a trade deficit of another Nu 25.4bn in this quarter alone.

In April-June, the exports clocked the Nu 14.6bn mark with almost 51% year-on-year growth, raking in Nu 21.2bn in six months of the current fiscal year. Import figures are shown in red with Nu 35.8bn, but the growth trend so far seen in these months points to further widening of the trade deficit.

In addition, due to the huge trade deficit in this quarter, the country has also plunged into a large deficit in the current account balance of foreign transactions.

Economists say a sharp rise in imports has led to a massive increase in the deficits of trade and transactions. However, to keep the country’s economy stable, some imports have to be restricted. Otherwise, the economy will fall into a crisis.

“The government has already issued moratoriums on the import of non-essential vehicles and goods,” experts say, adding that imports have been on the rise since the Covid-19 pandemic eased. And the gap between import and export or trade deficit is increasing.

According to the provisional trade statistics, Bhutan imported commodities worth more than Nu 34.2bn, which is a decrease of Nu 1.8bn from the import worth of Nu 35.8bn in the second quarter.

The country’s export value (including electricity) also experienced a decrease from around Nu 21.2bn in the second quarter to Nu 13.7bn in the third quarter.

Although the exact import and export figures will be released at the end of the year, electricity generation during the third quarter of the year was recorded at Nu 11.6bn.

The country also imported fuel worth more than Nu 735mn and other light oils and preparation (HSD) worth Nu 2.3bn in this quarter, putting diesel and petrol as the two top most imported commodities.

In addition, processing units form a huge component of import making it to the top 10 list with more than Nu 4.9bn in nine months of the year, which increased by Nu 2.4bn from the second quarter.

Bhutan’s top exports include silicon, which earned the country Nu 4.3bn in the second quarter and another Nu 4.1bn in the third quarter this year.

Figures, however, show that the country’s trade balance began deteriorating since 2013. The country experienced a trade deficit of Nu 29.1bn in 2019 against Nu 32bn in 2021. This shows that the trade deficit widens by almost Nu 2.5bn every year.

Statistics over the last five years (2018–2022) show that the country’s imports increased by almost 45%, and the increase in exports struggled at less than one-fourth of the import rate. This also shows the dependence of the country’s economy on hydropower.

In an earlier interview with Economic Affairs Minister Loknath Sharma, he said that electricity generation increases with the onset of monsoon and the third quarter of the year falls between July and September.

“Another reason where the trade deficit has widened is that we have faced issues with boulder export in August-September,” Lyonpo had said.

The minister had mentioned that the last quarter of the year is supposed to be the lean season for electricity production. Energy demand during these seasons is met through imports. So, the trade balance for the year is further bound to widen.

“Hydro-generation recorded a 12.7% decrease in the first eight months of 2021 compared to the same period last year. It will further widen now and we will have to import electricity from January,” Lyonpo said.

Meanwhile, the balance of trade with India alone accounts for around Nu 4.9bn and Nu 8.8bn from other countries. Business Bhutan learned that the trade deficit is not just a Bhutan-centric phenomenon; it has been in other developing countries as well, where both the current account and trade balance deficit are increasing.

Local economists explained that this is mainly due to higher import costs and lower export growth. The reason for the increase in import costs is that commodities and petroleum have to be imported at higher prices. “Although remittances played a good role last year, it is comparatively less this year. That has also affected the overall balance,” they added.

The current account and trade balance are being affected by the globalized turmoil in trade, they said, adding, “However, the amount of reserves we have is still at a tolerable level. But if this rate of imports continues, the reserves will also decrease over time. Now we need to reduce import costs.”

In this case, they said, the government should limit the import of non-essential products.

Meanwhile, the current NA session saw chairperson of the economics and finance committee, member of Gangzur-Minjey constituency, Lhuntse, presenting the committee’s review report on the balance of trade along with the committee’s observations and recommendations.

He reported that the committee reviewed the balance of trade to curb the negative balance of trade, foreign reserves, and facilitation of export and import business.

The Committee identified 20 issues of which some were resolved and a few were forwarded to the concerned agencies during the consultation with the relevant agencies. The Committee submitted six issues in the house for deliberation.

The objective is to enhance competitive advantage through tax policy including the effect of tax differential between India and Bhutan, and transport and logistics. Import substitution needs support from local industries that promote import substitution

After a lengthy deliberation on it, the committee’s recommendation was to address the Goods and Services Tax (GST) differences through a Preferential Trade Agreement and to Reform Bhutan Sale Tax (BST) for competitive advantage.

The House supported the recommendations through a majority show of hands. However, the house did not support the recommendation to revisit the reduction of the high voltage power tariff for industries as the Government had already prepared the domestic tariff projection 2040.

On the transport and logistics challenges, the committee recommended expediting the railway link and waterways; exploring rope-ways, and enhancing bridge load-carrying capacity. The House supported the recommendation with a majority show of hands.  The House also supported the three recommendations to support local industries that promote import substitution.

Kinley Yonten from Thimphu