Enhancing Happiness and Sustainable Development through Partnerships

14th Round Table Meeting

12th-14th March , 2019

Ministry of Finance

Macroeconomic Performance and

Outlook

Outline

1. Macroeconomic

Performance & Outlook

2. Development financing needs

5. Fiscal measures

6. Way forward

3. Innovative financing

4. Challenges

28.7

17.9

4.6

7.5

0

5

10

15

20

25

30

198

1

198

3

198

5

198

7

198

9

199

1

199

3

199

5

199

7

199

9

200

1

200

3

200

5

200

7

200

9

201

1

201

3

201

5

201

7

Growt rate in % Long term growth

Tala Commissioning

The growth mainly driven by hydropower.

Chukha Commissioning

Growth Trend

0.0

2.0

4.0

6.0

8.0

10.0

12.0

1981-9

0

1991-0

0

2001-1

0

2010-1

7

Growth rate

Average

Bangladesh

Bhutan

India

Nepal

Sri Lanka

0

500

1000

1500

2000

2500

3000

3500

4000

19

81-9

0

1991-0

0

2001-1

0

2010-1

7

GDP per Capita

GDP growth and GDP per capita remains above the regional average.

Bhutan in region

Hydropower contributes

about 30% of GDP in

2017

The economy witnessed structural changes since 5th FYP.

Agriculture

Industry

Service

Real Sector

51

20

30

15

(10)

-

10

20

30

40

50

60

-

10

20

30

40

50

60

20

08

/09

20

09

/10

20

10

/11

20

11

/12

20

12

/13

20

13

/14

20

14

/15

20

15

/16

20

16

/17

20

17

/18

Gro

wth

%

% o

f G

DP

NFA (LHS) Domestic credit growth (RHS) Pvt sector credit growth (RHS)

Persistent excess liquidity on account of Net Foreign Assets.

Monetary Sector

02468

101214161820

19

80

19

83

19

86

19

89

19

92

19

95

19

98

20

01

20

04

20

07

20

10

20

13

20

16

Mar

-17

Jun

-17

Sep

-17

Dec

-17

Mar

-18

Jun

-18

Sep

-18

Dec

-18

Percent

Bhutan India

Bhutan tracks India’s inflation.

Monetary Sector

-40

-30

-20

-10

0

10

20

30

40

50

200

8/0

9

200

9/1

0

201

0/1

1

201

1/1

2

201

2/1

3

201

3/1

4

201

4/1

5

201

5/1

6

201

6/1

7

201

7/1

8

% o

f G

DP

Current A/C Capital A/C Financial A/C Change in reserves

Overall balance of BOP has been positive on average.

External Sector

Current account deficit remained at 25% of GDP on average.

Outflows in 11th FYP:

-Imports 46% of GDP

-Interest repayment 9%

of GDP

Inflows in 11th FYP:

-Exports 25% of GDP

-Remittances 8% of

GDP

11th FYP CA

deficit: 25% of

GDP

11th FYP Trade

deficit: 21% of

GDP

Current Account Balance

International reserves in FY2018 was US$ 1.11 billion.

Maintained in CC & INR at 70:30 ratio

Meets 13 months of merchandise

imports

Meets 29 months of essential imports

International reserves

Fiscal balance maintained at sustainable level.

(5)

-

5

10

15

20

25

30

200

8/0

9

200

9/1

0

201

0/1

1

201

1/1

2

201

2/1

3

201

3/1

4

201

4/1

5

201

5/1

6

201

6/1

7

201

7/1

8

10FYP 11FYP

% o

f G

DP

Domestic Revenue Grants Current Capital Fiscal Balance

Fiscal Sector

Has been increasing on account of hydropower projects.

103

64

100

114

107

-

20

40

60

80

100

120

140

2008/0

9

2009/1

0

2010/1

1

2011/1

2

2012/1

3

2013/1

4

2014/1

5

2015/1

6

2016/1

7

2017/1

8

% o

f G

DP

External Hydro Debt Non-Hydro Debt Public Sector Debt

Public debt

6.17.2

6.05.0

5.7Real GDP growth

Economy projected to growth at 6% on average in 12th FYP.

Current account deficit

%GDP -15-11

-9 -8 -7

Pvt. Credit growth 17 17

10

2027

2018/19 2019/20 2020/21 2021/22 2022/23

Macroeconomic outlook

Key fiscal targets identified to ensure sustainable and stable

fiscal path in 12th FYP.

Fiscal Deficit to be maintained

below 3% of GDP

Maintain Tax to GDP ratio at 12%

Domestic revenue to cover at least

80% of total expenditure by end of

12th FYP

Non-Hydro debt to be contained

below 35% of GDP

Fiscal Targets

Deficit of Nu. 29.243b (US$ 418m) in the 12th FYP.

Nu.218b

($3b)

Nu.62b

($881m)

Nu.1.4b

($20m)

Revenue

Domestic Revenue External Grants

Internal Grants

Nu.281b ($4b)

Nu.194b

($2.8b)

Nu.116b

($1.7b)

Expenditure

Current expenditure

Capital expenditure

Nu.301b

($4.4b)

Nu. 29.243b

(US$ 418m)

Fiscal deficit

US$1=Nu.70

Development Financing Needs

Debt to GDP is expected to fall in the 12th FYP.

10

4%

10

6%

99

%

93

%

88

%

Fall in public debt

to GDP

76%99%

60%73%

16%25%

External Debt to GDP

Hydro Debt to GDP

Non-hydro Debt to GDP

Debt Projection

Supplement financing for Development.

Endowment funds

Bhutan for life

BIOFIN

Bhutan Climate Fund

Green bonds

Others being studied

GNH of Business Certification

Implemented Exploring

Public Private partnership

Innovative Financing

Low level of economic diversification: Mainly dependent

on hydropower.

Economic vulnerabilities: In addition to the impact of

climate change on economy, shocks from internal and

external source.

Development financing gaps: Significant resource gaps

Narrow tax base

High level of public debt

Persistent current account deficit

Challenges

Addressing some of the challenges

Implement innovative financing mechanism to supplement

development financing needs

Broadening tax base through modernization of sales tax into a

smart GST

Strengthen PFM: Institute FC & IC, introduce e-payment,

revise PRR and upscale e-GP.

Deepen Fiscal decentralization: Annual (Block) grants to LGs

Improving investment climate through amendment and

revisions of laws and regulations

Fiscal Measures

Solicit continued support of our development

partners for a smooth transition and for

achieving the SDGs and enhancing GNH

Way Forward

12th FYP is the last Plan before graduating from LDC.

Tashi Delek