## IMF Executive Board Concludes 2024 Article IV Consultation with Bhutan

_IMF News, September 19, 2024_

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## Bibliographic details
- Published: September 19, 2024

---

### Summary
- On September 9, 2024, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Bhutan.
- Over the past decade Bhutan balanced economic growth and poverty reduction with environmental sustainability, eliminating extreme monetary poverty by 2022.
- The pandemic hindered development but strong policies limited its health impact.

### Recent economic developments (2023–2024)
- Growth remained subdued during 2023.
- Large-scale emigration and policies to curb imports hindered a more robust recovery.
- Inflation accelerated in the second half of 2023, driven by wage increases in the public sector.
- The current account deficit (CAD) widened to around 30 percent of GDP driven by a large investment in crypto assets mining and the slow recovery in tourism.
- The fiscal deficit narrowed but remained high and non-hydro debt nearly doubled from pre-pandemic levels.

### Outlook and projections (medium term)
- Growth is projected to accelerate over the medium term, averaging 6.3 percent of GDP, but to remain volatile, boosted by hydropower projects and grant-financed capital investment.
- Inflation is expected to gradually ease towards 4 percent as the impact of wage increases subsides.
- The CAD is expected to narrow, supported by higher electricity exports due to commissioning of new hydropower plants, a continued recovery in tourism, and crypto assets exports.
- Key medium-term challenge: securing diverse sources of growth that provide quality employment opportunities while preserving Bhutan’s commitment to environmental sustainability.

### Risks and vulnerabilities
- Balance of risks tilted to the downside.
- Domestic risks:
  - Slippages on implementation of the goods and services tax.
  - Delays in hydropower projects.
  - Fiscal risks from materialization of contingent liabilities in the financial sector.
- External risks:
  - Volatile commodity prices—particularly of fuel.
  - Global slowdown that could hinder non-hydro exports.
- Climate vulnerability given the importance of hydroelectricity and agriculture.
- Crypto mining entails significant upside and downside risks given their price volatility.
- Large external debt and persistent CADs—while financing growth-enhancing investments via development partners—remain a source of vulnerability.
- Upside scenario: stronger-than-envisaged fiscal consolidation would accelerate rebuilding of fiscal and external buffers.

### Executive Board assessment and policy recommendations
- Directors agreed with the thrust of staff appraisal and commended poverty and inequality reduction over the last decade.
- Policy stance recommended:
  - Tighter fiscal and monetary policies to support the peg, reduce domestic and external imbalances, and rebuild buffers.
  - Careful management of potential risks stemming from crypto assets operations.
  - Structural reforms to foster high-quality private sector jobs and diversify the economy.
  - Continued Fund capacity development support is important.
- Fiscal policy:
  - Gradual and sustained fiscal consolidation, based on revenue mobilization and spending restraint, is essential to rebuild buffers and preserve debt sustainability.
  - Welcome timely implementation of the Goods and Services Tax and additional tax and revenue administration measures to achieve planned fiscal consolidation.
  - Recommend strengthening public financial management, public investment management, and domestic debt management.
- Monetary and external sector policy:
  - Monetary policy needs to be tightened in tandem with fiscal policy to ease balance-of-payment pressures and rebuild reserves.
  - Need for a well-functioning domestic liquidity management framework to support monetary policy operations.
  - Encourage phasing out existing exchange restrictions when conditions allow.
- Financial sector and supervision:
  - Address remaining financial sector vulnerabilities, especially given expiration of COVID-related support measures.
  - Welcome new guidelines and regulations to address credit quality and progress toward risk-based supervision.
  - Recommend further enhancing the AML/CFT framework.
- Structural and governance reforms:
  - Improve business environment, strengthen human capital accumulation, improve active labor market policies.
  - Welcome new FDI policy relaxing some restrictions (including access to foreign currency, local employment requirements, and caps on foreign ownership).
  - Strengthen public sector governance, including Royal Monetary Authority (RMA) governance framework and independence, and transparency in state-owned enterprises.
  - Mitigate potential risks from crypto asset operations; welcome RMA’s efforts to strengthen reserve management strategy and forthcoming audited financial statements of crypto-mining operations.
- Data:
  - Welcome improvements in data quality and call for further progress.

### Selected economic indicators (as reported)
- Nominal GDP (in millions of ngultrums) 1/: 184,660; 187,378; 193,386; 216,239; 237,322; 261,026; 292,837; 325,812; 357,677; 393,607; 438,906
- Real GDP growth (percent change) 1/: 4.6; -2.5; -3.3; 4.8; 5.0; 5.2; 7.2; 6.4; 5.6
- Consumer prices (EoP; percent change): 2.8; 4.5; 7.4; 6.5; 3.9; 4.7; 4.4; 4.0
- Consumer prices (avg; percent change): 3.0; 8.2; 5.9; 4.2
- Total revenue and grants (percent of GDP): 22.8; 29.1; 30.9; 25.1; 24.2; 28.1; 31.5; 30.1; 28.2; 27.3
- Domestic revenue (percent of GDP): 18.8; 19.3; 18.5; 18.1; 18.9; 20.3; 20.7; 20.8; 22.4
- Tax revenue (percent of GDP): 14.7; 12.2; 10.7; 12.0; 13.3; 13.4; 14.0; 14.4; 14.8; 15.2
- Foreign grants (percent of GDP): 5.5; 8.5; 7.5; 6.2; 8.8; 10.8; 9.4; 4.9
- Total expenditure (percent of GDP) 2/: 36.6; 32.1; 29.0; 28.8; 32.5; 34.2; 33.4; 32.2
- Current expenditure (percent of GDP): 15.0; 19.0; 22.5; 15.9; 14.9; 17.1; 17.0; 17.8; 18.7; 19.4
- Capital expenditure (percent of GDP): 11.8; 14.3; 16.1; 14.2; 15.5; 16.4; 12.8
- Primary balance (percent of GDP): -0.6; -1.4; -4.8; -5.5; -3.1; -3.0; -2.4; 0.1; 0.2; -0.1; -0.4
- Overall balance (percent of GDP): -1.5; -1.8; -5.8; -7.0; -4.6; -4.4; -2.7; -3.9
- General government debt (percent of GDP) 3/: 100; 115; 123; 117; 116; 114; 109; 122; 119; 130
- Broad money (M2) growth (percent change): 24.4; 9.8; 12.6; 13.2; 12.3; 13.0; 11.5
- Private credit growth (percent change): 20.5; 9.1; 11.2; 11.1; 10.0; 10.2
- Current account balance (percent of GDP): -19.2; -14.8; -11.2; -28.1; -34.4; -17.7; -32.1; -20.5; -12.5; -17.1; -14.1
- Goods balance (percent of GDP): -15.3; -12.1; -6.4; -21.1; -25.7; -12.9; -26.9; -15.0; -6.1; -10.1; -8.8
- Hydropower exports (percent of GDP): 12.1; 13.5; 11.0; 8.7; 9.5; 10.4; 11.9
- Imports of goods (percent of GDP): 38.6; 37.1; 33.9; 47.9; 49.2; 40.2; 55.6; 52.4; 45.6; 42.1; 42.2
- Services balance (percent of GDP): -1.9; -3.5; -6.5; -6.7; -3.7; -2.8; -3.6; -3.8; -8.4; -5.7; -5.0
- Secondary balance (percent of GDP): 6.6; 5.1; 2.9; 2.1; 2.0; 1.6; 2.5
- Capital account balance (percent of GDP): 8.0; 7.1; 3.8; 3.6; 3.1; 8.6
- Financial account balance (percent of GDP): -15.1; -9.1; -8.2; -10.7; -15.9; -24.0; -20.2; -13.6
- Gross official reserves (in USD millions): 1065; 1344; 1332; 840; 574; 606; 604; 969; 1616.3; 1758.9; 1878.7
- Gross official reserves (in months of imports): 12.4; 17.5; 17.9; 7.6; 5.8; 5.7; 10.3
- Gross official reserves (in months of goods and services imports): 10.1; 15.6; 8.1; 8.4
- Hydropower exports growth rate 4/: -1.2; 105.6; -9.4; -13.2; -20.7; 46.2; 30.4; 26.1
- Non-hydropower exports growth rate 4/: 13.7; -24.1; 26.8; 16.2; 16.5; 16.0
- Population in million (eop): 0.7; 0.8

*IMF Executive Board press release, September 19, 2024.*

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_Source: https://www.imf.org/en/news/articles/2024/09/19/pr-24336-bhutan-imf-concludes-2024-article-iv-consultation_