Subchapters:
- Basic data
- Public finances and the state budget
- Banking system
- Tax system
Basic data
Bhutan is one of the smallest economies. Bhutan’s economy is in many ways self-sufficient, depending heavily on India, development aid and loans. In addition, it was significantly affected by the coronavirus pandemic in 2021. In the past fiscal year, GDP grew by 6.5%. The economic slump primarily affected the tourism industry and related industries and spread further, mainly to the construction industry. GDP per capita has exceeded USD 12,000, inflation is at 6.3%. Data for the unemployment rate are not available for 2021. Inflation is rising in the country. The average inflation rate exceeded 8%, up from 7.0% in 2021. Check ebizdir for economical facts of Bhutan.
Remittances increased by 3.5% to N 7.6 billion in 2021. Foreign exchange reserves are estimated at USD billion. The fiscal deficit exceeded 280 million UISD. The trade deficit increased year-on-year to 32 billion last year, which is the highest deficit in the last five years. Well. Imports increased to 90.22 billion Nu. from last year and exports increased to N 57.99 billion. Major import partners include India, Singapore, Germany, Thailand, Japan, UK, United Arab Emirates, Malaysia, Hong Kong, Denmark, Vietnam, Netherlands, South Africa and the United States of America. Major export destinations included Vietnam, Italy, Nepal, Turkey, Great Britain, United States of America, Netherlands, Belgium, Hong Kong, Thailand and Taiwan.
| Pointer | 2019 | 2020 | 2021 | 2022 | 2023 |
| GDP growth (%) | 5.5 | -1.1 | 6.5 | 5 | 5.3 |
| GDP/population (USD/PPP) | 12,231.10 | 11,150.00 | 12,110.00 | 13,120.00 | 13,980.0 |
| Inflation (%) | 2.7 | 5.6 | 6.8 | 6.3 | 5.4 |
| Unemployment (%) | 2.5 | 3.7 | ON | ON | ON |
| Export of goods (billion USD) | ON | ON | ON | ON | ON |
| Import of goods (billion USD) | ON | ON | ON | ON | ON |
| Trade Balance (Billion USD) | -0.3 | -0.2 | -0.2 | -0.2 | -0.2 |
| Industrial production (% change) | ON | ON | ON | ON | ON |
| Population (millions) | 0.8 | 0.8 | 0.8 | 0.8 | 0.8 |
| Competitiveness | ON | ON | ON | ON | ON |
| OECD export risk | 06.VII | 06.VII | 06.VII | ON | ON |
Source: EIU, OECD, IMD
Public finance and state budget
| Public finance | 2021 |
| State budget balance (% of GDP) | -5.5 |
| Public debt (% of GDP) | 129.3 |
| Current account balance (billion USD) | -0.4 |
| Taxes | 2022 |
| AFTER | ON |
| F.O | ON |
| VAT | ON |
The country’s public debt stood at over N240 billion at the end of November 2021, a year-on-year increase of nearly 13%. The ratio of debt to GDP was 120.9%. The N19 billion fiscal deficit in the 2021-22 fiscal year budget is expected to further increase the debt burden. Over 91% of debt is foreign debt, with 75% of foreign debt related to hydropower projects. The external debt-to-GDP ratio is projected to peak at 125.9% in FY2022-23, before declining to 113.7% in FY2023-24. The budget deficit in the 2021-22 fiscal year was estimated at N17.153 billion at the end of June. The deficit shows a constant increasing trend. The deficit has increased from 1.96% of GDP in 2018-19 to an estimated 8.59% of GDP in FY2021-22.
The state budget for the financial year 2021-2022 of over N80 billion has been approved. Out of the total, the government has allocated more than Nu35 billion for recurrent expenditure and Nu38 billion for capital expenditure. The budget has five objectives. Maintaining public trust, maintaining economic activity, transforming the health and education system, using ICT and innovation and reform initiatives. The most was allocated to education (15 billion) and healthcare (9 billion). This is followed by economic and public services, agriculture, and road administration. More than Nu 5 billion is earmarked for repayment of loans and around Nu 900 million for other loans. 3 billion is intended for the response to covid-19. Revenue is estimated at N35 billion, of which 64% is tax revenue and 36% is non-tax revenue.
Banking system
The Royal Monetary Authority (RMA) functions as Bhutan’s central bank and central regulatory authority. Bhutan has a de facto monetary union with India, which limits the role of the RMA. RMA issues banknotes, regulates monetary policy, coordinates the activities of financial institutions. The administration of financial assistance to rural areas was taken over in 1988 by the Bhutan Development Finance Corporation, which is partially financed by the Asian Development Bank (ADB). From August 1, 2010, RMA entrusted commercial banks with exchange services.
The largest commercial bank in Bhutan is the Bank of Bhutan (BB), which has been partly privatized and partly owned by the State Bank of India. Since 1982, BB has been the primary lender to RMA for government programs. BB has 26 branches across Bhutan. ATMs can be found mainly in the capital Thimphu, in Paro and Phuntsholing, but so far only foreigners use them.
Non-bank financial institutions are also slowly emerging in Bhutan as part of the economic modernization process. Insurance services are provided by the Royal Insurance Corporation of Bhutan (RICB).
Tax system
Until 1960, only land taxes were collected in Bhutan, which were replaced by land, property, business income and consumption taxes. The most significant tax reforms took place in 1989 and 1992. In 2016, the Law on Taxes and Fees was approved.
Each business entity or firm must register with one of the 8 branches of the Regional Revenue & Customs Office (RRCO), which will issue a business license or business permit. At the same time as the registration, the RRCO issues a Taxpayer Number (TPN) to each entity, which is given as a reference when calculating taxes. Taxes are paid on 3of the given year, the form is submitted by business entities to the RRCO. Tax policy is administered by the Ministry of Finance, see http://www.mof.gov.bt/.
2020 saw some major tax reforms. The Goods and Services Tax (GST) Act was passed. GST is scheduled to be implemented in July 2022. GST will subsume the existing 11 different tax rate structures into a single standard rate of 7%. The full implementation of GST is expected to generate additional revenue of Nu 3 billion annually. An amendment to the Income Tax Act and an amendment to the Real Estate Tax Act were also approved.
