The external sector’s overall balance for FY 2023-24 has shown remarkable improvement in the fourth quarter, reaching Nu 9,848 million (M), a significant increase of 867.5% from Nu 1,283M recorded in the third quarter.
According to the latest Macroeconomic Situation Report from the Ministry of Finance, this significant turnaround has been primarily driven by an increase in the financial account during the fourth quarter, which was boosted by a higher inflow of hydropower and Royal Government of Bhutan Convertible Currency loans.
Additionally, the rise in non-hydro merchandise exports, which increased from Nu 40,980M in the third quarter to Nu 44,159M in the fourth quarter, also contributed to the betterment of the Balance of Payments.
Analysts predicted that the balance of payments will continue to improve, supported by expected increases in hydropower exports and higher inflows of grants and loans from development partners. The country’s gross international reserves in the fiscal year 2023-24 stand at USD 681.44M, sufficient to cover 14.3 months of essential imports. This is an improvement from the USD 551M estimated during the previous quarter update.
The report shows that the reserve position is also forecasted to strengthen further due to expected increases in capital inflows, service earnings from tourism, and continued growth in non-hydro merchandise exports.
Meanwhile, the balance of payment record all international trade and financial transactions made by country’s residents, encompassing three components: the current account, financial account and capital account.
The current account, which measures the trade balance along with net income and direct payments improved from Nu 81,198M in FY 2022-23 to Nu 56,316M by the end of FY 2023-24. However, in the fourth quarter, the current account balance saw a decline reaching Nu 56,316M compared to Nu 51,039M in the third quarter. This decline was mainly due to an increase in service imports during the 4th quarter compared to the third quarter.
Nevertheless, the current account balance is expected to improve further in the medium term as financial and capital accounts are projected to grow alongside increased non-hydro exports.
In term of merchandise trade, imports from both India and countries other than India witnessed a slight decrease during FY 2023-2024, while exports experienced a modest increase. As a result, the trade deficit is expected to decrease significantly in 2024. Projection indicates a stabilization of the trade deficit at an average of Nu 57,405M in the medium term, indicating an improvement compared to previous quarter.
The financial account inflows increased to 57,905M, compared Nu 41,497M in the previous quarter, and significantly higher than the Nu 25,292M recorded in the previous fiscal year. This improvement is primarily due to a higher inflow of loans in the fourth quarter, while the capital account remained steady at Nu 8,295M, consistent with the third quarter estimate.
Looking ahead, both the financial and capital accounts are expected to improve further, driven by anticipated increases in loan and grant inflows associated with the implementation of the 13th FYP and the construction of ongoing and new hydropower projects.
By Nidup Lhamo, Thimphu
