Banks and private sector yet to come to consensus over monetary measures

Trade deficit with India surges during the last FY

Heightened imports and dipping exports led to the surge

The trade deficit with India stood at about Nu 60.91 billion (B) during the Fiscal Year (FY) 2022-2023, comprising around 74.2% of the overall trade deficit, according to the Royal Monetary Authority’s (RMA) annual report, 2023.

The report states that during the review year, the trade deficit surged by 60.3% from about Nu 28.17B with an increase in merchandise imports by 16.5% from about Nu 79.34B, a decrease with 7% in exports from Nu 51.17B in the fiscal year FY 2021-2022.

According to the central bank, the increase in the trade deficit is mainly attributed to the heightened import pertaining to continued imports of machineries and the dip in exports led by 13.2% decrease in hydropower exports to Nu 20.59B in FY 2022-2023 followed by 1.6% contraction in non-hydropower exports from Nu 27.46B of the previous year.

On the invisible front that comprises of services, primary and secondary income balances, the net service payments with India recorded a marginal growth from Nu 4.68B in FY 2021-2022 to Nu 5.51B in FY 2022-2023.

The increased is mainly attributed with 17.3% growth in service imports amounting to Nu 6.76B against the minimal increase of service exports from Nu 1.07B in FY 2021-2022 to Nu 1.24B in FY 2022-2023.

Similarly, the net primary income payments witnessed a marginal increase to Nu 12.94B in FY 2022-2023 from Nu 12.10B of previous year. The increase is attributed with an increase in interest payments on the hydropower loans.

The secondary income with India recorded a deficit at Nu 2.93B during the review year against surplus of Nu 4.21B last year. The secondary payment is mainly on account of increase in payments dominated by worker’s outward remittances.

For instance, the grants for the non-hydropower investment have also marginally dropped by 9.4% to Nu 5.30B in FY 2022-2023.

The report also states that there was an increase in financial inflows by 83.4% to Nu 18.06B, which was from an increase in external hydropower loan from Nu 10.28B in FY 2021-2022 to Nu 16.09B in FY 2022-2023.

The trade deficit with countries other than India (COTI) has improved by 10.2%t from a deficit of Nu 17.51B as compared to the previous FY 2021-2022.

The improvement was mainly attributed with an increase in exports by 23.3% from Nu 6.69B compared to the FY 2021-2022.  Service receipts from COTI skyrocketed to Nu 9.23B in the FY 2022-2023, marking more than 15 times increase from the previous FY.

While service receipts from insurance and pension, financial services, telecommunications, and other sectors remained minimal, it collectively contributed 20% of the receipts while growth in tourism contributed the highest in the service receipts generating about Nu 1.6B in the FY 2022-2023.

Notably, service payments increased to Nu 19.55B from Nu 10.04B in FY 2021-2022, an increase in the net service payments.

Among the total service payments, personal travel, particularly related to medical and education expenses dominated the service payments portfolio by Nu 11.05B, that is 56.5%, followed by transportation service payments with Nu 6.66B, that is 34.1%.

Meanwhile, the capital inflows from COTI amounted to Nu 103.4 million (M) in FY 2022-2023, a fall from Nu 368.3M in FY 2021-2022, on account of decline in the grants for investment.

Sherab Dorji from Thimphu