## IMF Executive Board Concludes 2018 Article IV Consultation with Bhutan

_IMF News, October 30, 2018_

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## Bibliographic details
- Published: October 30, 2018

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### Recent performance and milestones
- Poverty declined from 12 percent in 2012 to 8.2 percent; extreme poverty fell to 1.5 percent.
- Per capita incomes at nearly $3,600 in 2018, up from $1,100 in 2004.
- Growth averaged 6 percent over the 11th Five Year Plan.
- FY2018 growth is expected to slow to 5.8 percent from 7.4 percent in FY2017.
- Inflation around 4¼ percent in December 2017.
- Current account deficit narrowed from an average of 26 percent of GDP over FY2012-16 to 22.8 percent in FY2017.
- Reserve cover at 13 months of imports (noted as robust levels).

### Outlook and key risks
- FY2019 growth forecast: 4.8 percent, reflecting a contraction in fiscal spending related to the timing of government transition.
- Medium-term growth: around 7 – 7½ percent expected as three new hydropower projects come on stream.
- Medium-term improvements expected in the current account, reserves, and the fiscal position as hydropower projects commence.
- Domestic risks:
  - Delays in implementing the goods and services tax (GST).
  - Delays in completing hydropower projects and lower electricity exports.
  - Higher fiscal spending in FY2019 and more gradual fiscal consolidation could lift growth above the baseline.
- External risks:
  - Weaker growth and higher inflation in India.
  - Increases in global oil prices.
- Key policy challenges:
  - Avoiding a sharp reduction in capital spending.
  - Timely implementation of the GST.
  - Prudent management of anticipated hydropower revenues.
  - Diversifying the economy away from dependence on hydropower generation; access to finance and labor market reforms are core issues.

### Executive Board assessment and policy recommendations
- Directors welcomed:
  - Significant improvements in per capita income and poverty indicators.
  - Strong economic growth and low inflation.
  - Progress on structural reforms, especially in access to finance and economic diversification.
- Concerns and priorities:
  - External imbalances are declining but remain large.
  - Key medium-term challenges: domestic revenue mobilization, prudent management of hydropower revenues, maintaining macroeconomic stability, enhancing competitiveness, and further diversifying growth sources.
- Fiscal policy:
  - Noted that the FY2019 interim budget implies a sharp fiscal withdrawal and may impact growth.
  - Given infrastructure needs, Directors called for higher capital expenditure supported by additional domestic revenue and a modest increase in domestic financing.
  - Welcomed authorities’ commitment to implement a broad-based GST by July 2020 and called for rationalization and gradual curtailment of tax exemptions.
  - Encouraged development of a domestic public debt market and further strengthening of public financial management.
  - Commended steps to establish a macroeconomic stabilization fund to manage hydropower revenues and business fluctuations; emphasized transparent and rule-based principles for the fund’s operations.
- Monetary and exchange rate policy:
  - Current monetary policy stance considered broadly appropriate.
  - Welcomed RMA efforts to modernize the monetary policy framework by enhancing liquidity management and forecasting capabilities.
  - Encouraged establishment of an interest rate corridor and steps to develop the interbank market to support the ngultrum’s peg with the Indian rupee.
  - Noted that once the framework is fully operational, the minimum lending rate could be abolished.
  - Directors agreed the exchange rate peg to the Indian rupee remains an appropriate nominal anchor.
  - Suggested Bhutan’s reserve composition may benefit from a higher share in rupees and encouraged elimination of exchange rate restrictions as soon as macroeconomic conditions allow.
- Financial sector:
  - Risk of systemic distress remains low, but the nascent banking sector needs strengthening.
  - Underlined need to further improve the prudential framework and strengthen oversight to avoid build-up of risks.
  - Welcomed the priority sector lending program to improve access to finance for cottage and small industries but emphasized need to monitor its performance.

### Selected economic indicators (highlights from table)
- Real GDP at market prices (percent change)
  - 2012/13: 3.6
  - 2013/14: 4.0
  - 2014/15: 6.2
  - 2015/16: 7.3
  - 2016/17: 7.4
  - 2017/18 Est.: 5.8
  - 2018/19 Proj.: 4.8
- Consumer prices (percent change, period average)
  - 2012/13: 11.3
  - 2013/14: 9.6
  - 2014/15: 7.6
  - 2015/16: 4.6
  - 2016/17: 4.9
  - 2017/18: (noted in text as around 4¼ percent in December 2017)
- General government (In percent of GDP)
  - Total revenue and grants
    - 2012/13: 30.2
    - 2013/14: 33.6
    - 2014/15: 28.8
    - 2015/16: 29.9
    - 2016/17: 26.7
    - 2017/18: 31.1
    - 2018/19: 22.1
  - Tax revenue
    - 2012/13: 15.2
    - 2013/14: 14.4
    - 2014/15: 14.6
    - 2015/16: 14.2
    - 2016/17: 13.6
    - 2017/18: 14.9
  - Non-tax revenue
    - 2012/13: 5.6
    - 2013/14: 6.3
    - 2014/15: 5.4
    - 2015/16: 5.0
    - 2016/17: (not listed)
    - 2017/18: (not listed)
  - Foreign grants
    - 2012/13: 9.4
    - 2013/14: 12.7
    - 2014/15: 7.9
    - 2015/16: 10.6
    - 2016/17: 8.1
    - 2017/18: 9.9
    - 2018/19: 2.6
  - Total expenditure and net lending
    - 2012/13: 34.4
    - 2013/14: 29.8
    - 2014/15: 27.3
    - 2015/16: 30.1
    - 2016/17: 32.1
    - 2017/18: 19.9
  - Current expenditure
    - 2012/13: 17.8
    - 2013/14: 16.0
    - 2014/15: 16.7
    - 2015/16: 16.3
    - 2016/17: 15.1
    - 2017/18: 16.2
  - Capital expenditure
    - 2012/13: 18.2
    - 2013/14: 14.8
    - 2014/15: 12.3
    - 2015/16: 15.5
    - 2016/17: 17.0
- Overall balance (In percent of GDP)
  - 2012/13: -4.2
  - 2013/14: 3.8
  - 2014/15: 1.5
  - 2015/16: -1.1
  - 2016/17: -3.3
  - 2017/18: -1.0
  - 2018/19: 2.2
- Public sector debt (percent of GDP, public and publicly guaranteed debt, including loans for hydropower projects)
  - 2012/13: 99.9
  - 2013/14: 96.2
  - 2014/15: 95.7
  - 2015/16: 114.2
  - 2016/17: 106.3
  - 2017/18: 102.7
  - 2018/19: 103.9
- External sector (current account balance, in millions of dollars and percent of GDP)
  - Current account balance (in millions of dollars)
    - 2012/13: -470
    - 2013/14: -483
    - 2014/15: -574
    - 2015/16: -621
    - 2016/17: -547
    - 2017/18: -597
    - 2018/19: -426
  - Current account balance (percent of GDP)
    - 2012/13: -25.4
    - 2013/14: -26.4
    - 2014/15: -28.3
    - 2015/16: -29.4
    - 2016/17: -22.8
    - 2017/18: -15.0
- Trade balance (in millions of dollars)
  - 2012/13: -377
  - 2013/14: -393
  - 2014/15: -430
  - 2015/16: -540
  - 2016/17: -469
  - 2017/18: -460
  - 2018/19: -226
- Exports (goods, in millions of dollars)
  - 2012/13: 546
  - 2013/14: 535
  - 2014/15: 580
  - 2015/16: 493
  - 2016/17: 555
  - 2017/18: 572
  - 2018/19: 716
- Imports (goods, in millions of dollars)
  - 2012/13: -923
  - 2013/14: -928
  - 2014/15: -1,010
  - 2015/16: -1,033
  - 2016/17: -1,024
  - 2017/18: -1,031
  - 2018/19: -942
- Grants (current transfer, in millions of dollars)
  - 2012/13: 174
  - 2013/14: 232
  - 2014/15: 160
  - 2015/16: 225
  - 2016/17: 195
  - 2017/18: 260
  - 2018/19: 74
- Capital and financial account balance (in millions of dollars)
  - 2012/13: 578
  - 2013/14: 516
  - 2014/15: 586
  - 2015/16: 831
  - 2016/17: 551
  - 2017/18: 645
  - 2018/19: 510
- Loans (net, in millions of dollars)
  - 2012/13: 294
  - 2013/14: 212
  - 2014/15: 350
  - 2015/16: 632
  - 2016/17: 377
  - 2017/18: 283
  - 2018/19: 315
- Gross official reserves (in millions of dollars)
  - 2012/13: 917
  - 2013/14: 998
  - 2014/15: 959
  - 2015/16: 1,115
  - 2016/17: 1,226
  - 2017/18: 1,243
  - 2018/19: 1,327
- Gross official reserves (in months of goods and services imports)
  - 2012/13: 11.9
  - 2013/14: 11.1
  - 2014/15: 13.1
  - 2015/16: 14.3
  - 2016/17: 16.6
- External debt (in percent of GDP)
  - 2012/13: 94.1
  - 2013/14: 93.6
  - 2014/15: 94.0
  - 2015/16: 108.6
  - 2016/17: 105.4
  - 2017/18: 107.4
- Debt service ratio (in percent of G&S exports)
  - 2012/13: 10.9
  - 2013/14: 22.8
  - 2014/15: 18.7
  - 2015/16: 33.3
  - 2016/17: 38.0
- Ngultrum per U.S. dollar (period average)
  - 2012/13: 54.9
  - 2013/14: 61.5
  - 2014/15: 62.1
  - 2015/16: 66.3
  - 2016/17: 66.4
- Memorandum items:
  - GDP at market prices (in billions of Bhutanese Ngultrum)
    - 2012/13: 101.4
    - 2013/14: 112.5
    - 2014/15: 125.8
    - 2015/16: 140.4
    - 2016/17: 159.7
    - 2017/18: 176.2
    - 2018/19: 192.6
  - GDP at market prices (in millions of U.S. dollars)
    - 2012/13: 1848.7
    - 2013/14: 1829.5
    - 2014/15: 2027.6
    - 2015/16: 2116.7
    - 2016/17: 2404.6
    - 2017/18: 2623.6
    - 2018/19: 2838.6
  - Electricity exports (in percent of total goods exports)
    - 2012/13: 34.5
    - 2013/14: 31.2
    - 2014/15: 31.4
    - 2015/16: 32.4
    - 2016/17: 32.3
    - 2017/18: 34.3
    - 2018/19: 40.7
  - Unemployment rate (in percent) (on a calendar year basis)
    - 2012/13: 2.1
    - 2013/14: 2.9
    - 2014/15: 2.5

*IMF Communications Department, October 30, 2018.*

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## References

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_Source: https://www.imf.org/en/news/articles/2018/10/30/pr18401-bhutan-imf-executive-board-concludes-2018-article-iv-consultation_