Bhutan’s economy and trade imbalance

May 7, 2017
GDP & debt
Following a slowdown in FY 2012-13, our economy revived in the subsequent years, and growth has been progressive over the last couple of years. By the end of 2015, the size of our economy was Nu 132.000 billion, which translates to a per capita income of Nu 172,814 (approx. USD 2700 per person/annum) considering the total population of 768,577 (as per data from NSB).
Over this period of time, the country’s debt to GDP ratio has also risen, reaching almost 117% of the GDP by mid 2016. This indicates that earnings from our economic activities are insufficient to service the debts we took to undertake those activities, compelling us to take more credits to pay the previously accumulated debts.  The good thing is that debt service ratio of both the convertible currency and INR have substantially declined over the years, which as of June 2016, is at 14.2% and 8.3% respectively. One of the reasons for the drop in the debt service ratio of INR could be that the government has liquidated most of those high interest bearing INR credits.
Trade imbalance
Statistics over the last six years (2011 – 2016) show that our imports have substantially increased, almost 38%, while the increase in our exports struggled at less than one third of the import rate (11%) during this period. In absolute terms, our imports have skyrocketed by almost Nu 19 billion but exports grew only by a tiny Nu 4 billion during this period.  For instance, in 2016, the total imports were at Nu 67.40 billion while export was around Nu 35.30 billion. This huge difference between import and export is called trade imbalance. A country importing more than what it exports, faces negative trade imbalance. Over the last six years, we have become more consumerist or alternatively, we have become a lazy society, depending on others for everything or our production costs were so high and hence rely heavily on imports.  Whatever may be the reasons, our manufacturing and export oriented goods and services didn’t grow to the extent it should have been. The overall trade imbalance over the last six years is shown below:
Currently, our overall trade imbalance is to the tune of Nu 32 billion. It is a well-known fact that more than 85% of our trade is with India. We should note that Indian markets are far more important to us than ours to them. What India makes out of doing business with us may be insignificant but what we earn through business with them is so vital for the dynamics of our economy.  In a nutshell, we must accept the fact that Indian markets will survive without our goods and services but it may be difficult for us to progress without access to theirs (both import & export). The quantum of imports from India (almost Nu 55 bn) and export to India (Nu 32 bn) formed more than 82% and 90% of the overall imports and exports, respectively in 2016. Considering the vitality of the Indian market for our growth, it’s so important to study and understand the economic activities between our markets. Besides Indian markets, it’s even more important to assess and understand our own economy and the market. Understanding the market dynamics of these two will help determine the areas of concerns and opportunities so that government can be requested to set their priorities right, if we were to ever balance the existing trade imbalance. Trade balance with India until 2016 is as follows:
Top 10 imports from India
There are no immediate signs of improvement in the trade imbalance we have with India, at least for the next couple of years. Trends over the last few years show that our imports have consistently dominated the exports. This is a huge concern, an issue worth the attention of all -politicians, farmers, public servants, business persons, entrepreneurs, etc. It’s an issue that can be tamed only when all forces join together and by force I mean when every stakeholder understands and accordingly works towards it. Table-1 shows the trade statistics with India over the last 6 years:
The first thing for understanding the current trade imbalance is to study and reflect on our imports from India and individual consumption habits.  Table 2 below outlines the ten top imports from India.
Not surprisingly, import of vehicles (passenger cars & goods carriers) tops the list at almost Nu 6.50 bn followed by diesel and petroleum products (Nu 5.78 bn). These two top imported items go hand in glove and any strategy and policy to reduce vehicle imports will have direct reduction of fuel imports. We have seen that tax hikes have failed to curtail vehicle imports and instead made the ‘commoners’ more indebted. An indebted individual or a society has limited or no capability to invest in other growth oriented sectors and hence affects economic growth at macro level. Everyone argues that improved, reliable and efficient public transport service is the only solution to slow down vehicle imports. Sadly, we have failed to heed to ourselves for over a decade now. It’s time we hear ourselves and outline strategies, plans and polices to overhaul the transport networks and infrastructural (road) developments. Second, we spent a whopping Nu 1.54 bn on importing rice from India in 2016. This is absolutely weird considering that more than 70 percent of our people live on farming. Besides this, we should also formulate regulations and polices to encourage and motivate investment into other sectors like manufacturing of hydraulic turbines, electrical machinery, and ferrous products so that these items are locally manufactured.
Top 10 exports to India
Electricity is undoubtedly the most exported product to India, earning around INR 13.03 bn in 2016, which is almost 40 percent of the total exports. Thus, this sector must be explored further, preferably in a planned and most judicious and efficient manner. However, care and mindful thought of the Indian energy market and the regional mechanisms must be studied and analysed so that returns from sale of electricity can be maximised. Our ferro-silicon industries are performing well, the exports of which have robbed in INR 6.53 billion in 2016. Cement is another product we have, the production of which can be improved considering that our biggest cement plant (DCCL) is still operating below capacity. Mines & minerals are yet another product which we should cash on. I hope the State Mining Corporation (SMC) which the government instituted, enhances the earnings through proper extraction, management and sales of our mines & minerals. Cardamon, which our farmers are cultivating in mass, is also doing well and our farming community must be encouraged to grow more of it in a smart way.
Government must see what it can do through policy, taxation and fiscal interventions to encourage manufacturing & production of these goods so that exports can be boosted.
The overall trade imbalance is to the tune of Nu 32.10 bn, of which almost 72% (Nu. 23.00 bn) is with India and the GDP to debt ratio is hovering at 117%, both of which are rising. This is mainly because our economy is import driven while exports remain stunted. In 2016, the overall import is almost Nu 67.36 billion of which a huge 82% (55.28 bn) is from India. Contrarily, our exports were just Nu 35.26 bn of which a massive 91% (32.00 bn) was to India. Therefore, we must understand and appreciate the importance of Indian market for the growth of our economy.
In 2016, vehicles (INR. 6.50 bn) and petroleum & diesel (5.67 bn) topped the import lists while the electricity (13.03 bn) is the most exported item to India. Sale of electricity still plays vital role in bridging the trade imbalance. If not for the electricity sector, our trade imbalance would have further deteriorated to the tune of Nu 45 billion. We must continue exploring our hydropower resources to enhance revenues from it. In addition, we must re-look into legislations, polices & guidelines to encourage investment into those sectors which have huge export potentials. Industrial growth must be pursued vigorously, which besides enhancing manufacturing and productions will create jobs and other ancillaries in the economy. If not late, it’s not early to work towards bridging the trade imbalance. The sooner the better, as any delay would mean the road ahead will become more stiff and slippery. As a citizen, all of us are equally duty bound to contribute towards this common goal, a goal to bridge trade imbalance.
Read More:
Kuensel online, May 8, 2017

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