Regions and Countries

	Table of Contents
p. 7 of 13 BACK | NEXT Map Executive Summary I. Overall Performance During Eighth Plan Period A. Growth, Employment, Savings, and Investment B. Fiscal Developments C. Monetary Developments and Prices D. Balance of Payments and External Debt E. Human and Social Development II. Improving Quality of Life for All: The Ninth Plan Appendix

Country Economic Review - Bhutan : I. Overall Performance During Eighth Plan Period

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D. Balance of Payments and External Debt

22. India receives 90 percent of Bhutan's merchandise exports, mainly electrical energy, and accounts for about 75 percent of Bhutan's total trade. During the Eighth Plan period, Bhutan's merchandise exports in total have declined somewhat in proportion to GDP, although they have increased overall - albeit erratically - in dollar terms (Table 4). On the other hand, imports have increased slightly in proportionate and significantly in nominal terms. The trade and current account deficits have each increased in both proportionate and nominal terms, as have the deficits with India, considered separately.

23. However, capital inflows, mostly in the form of grants, have continued to exceed by some margin the deficits on trade and current account. The net effect of these trends has boosted Bhutan's foreign exchange reserves significantly over time. By the end of FY2001, for example, they stood at $294 million, sufficient to finance over 16 months of merchandise imports at the FY2001 level. By comparison, at the start of the Eighth Plan, reserves stood at $217 million (equivalent to 19 months of that year's merchandise imports). While they increased significantly in FY1998, FY1999, and FY2000, the increase in FY2001 was very much more moderate and in line with the reduction in grant inflows both from India and in total. These represent a comfortable level of foreign exchange reserves.

24. Total public external debt has risen significantly during the Eighth Plan period and currently represents slightly more than 50 percent of GDP (Statistical Appendix, Table A.7). In total, public external debt stood at $235 million at the end of FY2001 (Table 5). However, convertible currency debt - all of it concessional - has tended to decline as a proportion of GDP, although to rise nominally (especially to the ADB), but nonconvertible currency debt has risen sharply both nominally and proportionately, largely in response to the loans from India in connection with the new hydropower projects. There is no commercial debt at the present time, although this is likely to change when Druk Air renews its fleet.

25. The debt service ratio, which has always been maintained at manageable levels, has actually declined during the Eighth Plan period. Aside from annual fluctuations in earlier years, which tended to reflect principal repayments, the debt service ratio stood at 5.6-5.7 percent of merchandise exports in FY2000 and FY2001.

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