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II. STRUCTURE OF THE ECONOMY
Gross Domestic Product
Bhutan has grown steadily over the past 20 years (6-7% p.a.). In 2005, GDP expanded 5%, reaching approximately US$1500 per capita. Much of the growth is due to the coming onstream of additional hydroelectric capacity (for domestic use as well as for export to India), and to the rapidly growing services sector. Inflation has remained within single digits over most of the past decade, due in part to currency parity with the Indian rupee. With a trade ration of nearly 60% of GDP, Bhutan is South Asia’s most open economy.
Main Economic Sectors
The economy features a mix of the traditional agriculture and forestry (25% of GDP in CY2005), industry (40%: broadly defined to include energy, construction, mining and manufacturing), and a growing services sector (35%: retail, wholesale, transport, finance, communications, etc). Agriculture remains the mainstay of the majority of the population. Over the past five years, agriculture has grown 2.2% p.a. on average, manufacturing 5% p.a., construction 12% p.a., trade and services 12% p.a., social sectors 9% p.a., and electricity 25% p.a.
Hydropower is the leading export, contributing over 40% of national revenues in 2006. It will contribute as much as 60% of public receipts when the Tala Project is fully commissioned, underpinning Bhutan’s goal of economic self-reliance. The National Electrification Programme aims to provide electricity to all citizens by 2020.
Tourism is an integral part of the government’s plans to develop the private sector and generate employment opportunities. Tourism is Bhutan’s main source of hard currency, with approximately 17,000 tourists generating revenues of US$ 24m in 2006 (13,624 and US$18.5m in 2005 and 9249 and US$12.5m in 2004). Focusing on its niches of cultural and eco-tourism, and capitalising on its image as an exclusive, little-known destination, Bhutan is developing its tourism sector step by step. A key aim is to preserve national identity and culture while gradually increasing exposure to the outside world. As accommodation, transport and travel services expand, the government is gradually increasing the number of tourist visas and incorporating more flexibility into tourism management. Indian tourists do not need visas, but they still must apply for route permits.
III. INTERNATIONAL TRADE
Agriculture and forestry products, and minerals, are Bhutan’s traditional export items, but these are constrained by limited arable land, environmental considerations (eg, forest conservation), transport challenges, productivity, economies of scale, etc. Tourism and energy now supply much of Bhutan’s foreign exchange (including rupees, which are not yet convertible on capital account). The government would like to increase exports that generate ‘hard currency’; efforts are focusing on ‘high-value, low-volume’ products (eg, organics, traditional health products, textile products, handmade paper products, jewellery, wood products, etc).
Bhutan depends on imports of machinery and equipment for infrastructure development and industrial inputs. It also imports fuel, foodstuffs, clothing, and many other consumer goods. Various import restrictions exist to protect hard currency reserves.
Bhutan’s international trade activities are relatively recent and highly concentrated in Asia, with India being by far the main trading partner due to the bilateral Free Trade Agreement and currency parity between the Ngultrum and the Indian Rupee. In recent years, on average, India has taken 94% of Bhutan’s exports and supplied 84% of its imports. The Government encourages the diversification of trade to generate more convertible currency.
Balance of Trade
|
Year
|
Imports
|
Exports
|
Balance
|
|
|
(US$
million)
|
(Nu.
million)
|
(US$
million)
|
(Nu.
million)
|
(US$
million)
|
(Nu.
million)
|
|
2000
|
203
|
9183
|
103
|
4655
|
-100
|
-4528
|
|
2001
|
191
|
8634
|
106
|
4797
|
-85
|
-3837
|
|
2002
|
197
|
8931
|
112
|
5676
|
-855
|
-3855
|
|
2003
|
249
|
11286
|
133
|
6023
|
-1165
|
-5263
|
|
2004
|
411
|
18639
|
182
|
8271
|
-229
|
-10368
|
|
2005
|
376
|
17035
|
251
|
11386
|
-125
|
-5649
|
Source: Department of Revenue and Customs, Ministry of Finance.
Bhutan’s Top Trading Partners
Imports from:
Nu. million
|
Countries
|
2000
|
2001
|
2002
|
2003
|
2004
|
2005
|
|
India
|
7,463
|
6,989
|
7,607
|
10,261
|
10194
|
12795
|
|
Japan
|
305
|
622
|
327
|
200
|
598
|
648
|
|
Singapore
|
251
|
215
|
254
|
199
|
420
|
447
|
|
Thailand
|
-
|
290
|
242
|
149
|
350
|
276
|
|
Korea
|
124
|
-
|
132
|
132
|
2
|
248
|
|
Indonesia
|
|
|
|
|
1
|
240
|
|
Germany
|
|
|
|
|
4248
|
200
|
|
China
|
|
|
|
|
205
|
182
|
|
Taiwan
|
|
|
|
|
162
|
176
|
|
Malaysia
|
|
|
|
|
80
|
175
|
Exports to:
Nu. million
|
Countries
|
2000
|
2001
|
2002
|
2003
|
2004
|
2005
|
|
India
|
4,377
|
4,700
|
5,154
|
5,926
|
7762
|
9970
|
|
Hong
Kong
|
|
|
|
|
12
|
686
|
|
Bangladesh
|
165
|
222
|
223
|
224
|
411
|
562
|
|
Singapore
|
|
|
|
|
2
|
73
|
|
Nepal
|
28
|
41
|
33
|
14
|
18
|
45
|
|
Thailand
|
|
|
|
|
1
|
33
|
|
Japan
|
-
|
-
|
-
|
5
|
24
|
7
|
|
United
Kingdom
|
10
|
6
|
4
|
-
|
6
|
5
|
|
USA
|
239
|
14
|
14
|
5
|
5
|
4
|
|
Austria
|
-
|
-
|
-
|
-
|
14
|
1
|
Source: Department of Revenue and Customs, Ministry of Finance.
The Government is taking steps to address the key challenges to developing trade. These challenges include:
-
encouraging entrepreneurship and assisting firms to enter international trading activities on a sustainable basis
-
developing critical mass (ie, sufficient and reliable supplies of goods) to meet demand
-
improving quality and delivery to supply time-sensitive segments
-
negotiating faster and cheaper transport to markets (via better logistics, streamlined border clearance, better transit arrangements to Indian ports and better air cargo facilities)
-
raising competitiveness and consumer awareness of Bhutanese goods through market analysis and targetted marketing strategies
-
attracting investment to high-priority sectors to facilitate transfer of skills and technology
-
capitalising on existing preferential arrangements and seeking improved concessions to increase and diversify exports.
As trade negotiations are an ongoing phenomenon, the challenge will be to build up a solid body of trade experts, and to develop strong negotiating and implementation management capacity.
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