The kingdom of Bhutan is a central Asian nation home to an estimated 700,000 to 2.3 million people hidden in amongst the world’s highest mountains nestled between India and China. Bhutan is a developing nation of strong values and spiritual convictions, a society where the Bhutanese majority profoundly reject the ways of Western consumerism. However, with the passing of time, Bhutan is slowly opening up to the global community from its unique pristine culture. It is slowly linking to the global community but avoiding much of the West, that is, a country with no fast food establishments, Western stores, etc. Bhutan has in place laws that may seem bizarre to those from the West. Some of these laws include smoking which is not allowed in public and Bhutan is on pace to become the world’s first nation to ban sale of tobacco, plastic bags are outlawed in order to protect the environment.
This is a country deeply into spiritualism where ancient Buddhist scriptures receive first priority and whereby televisions only arrived to Bhutan in 1999 and mobile telephones are not main stream. As measured by money, approximately 32 percent live below the poverty line (2003). However, Bhutan takes great pride in its own measurement of GNH (gross national happiness). It is a fair bet that GNH rather than GDP is a more accurate measurement of the present state of affairs within Bhutan.
POLITICS: monarchy but democratic reforms are in progress, please contact us at BankINTRO.com for an overview.
ECONOMY: robust economic growth over the last few years now with the Tala hydropower project underway. Infrastructure investments fueled by debt financing has helped to record GDP growth for Bhutan in the 7 percent annual growth range from year 2002-05. Now with hydropower output, debt levels are expected to decline for Bhutan. Further, foreign aid from India over the years has provided a mainstay of financial support to Bhutan as inflation is projected to stay in single digits. Agriculture employs 90 percent of the population. Key industries for Bhutan include: tourism, hydroelectric energy, wood products, fruit processing, gypsum, cement, etc. Gross international reserves are at a satisfactory level of $425 million USD (2006) equivalent to 4 months import coverage
Economic Statistics
Total GDP as measured by purchasing power parity stands at $2.9 billion USD (2003) with corresponding GDP/Capita at $1,400 USD. Market GDP stands at $841million USD (2005). GDP growth rates had year 2005 at 7.5 percent of GDP, 2006 at 12 percent, year 2007 projected at a stunning 15.2 percent (hydropower output) and 2008 to moderate at 8.6 percent. Inflation for 2005 at 5.5 percent, year 2007 estimated at 5.5 percent, 2008 at 5.3 percent. Trade picture reflected in a deficit for 2005 at $224 million USD although the overall balance of payments is in a modest surplus. Year 2005 fiscal deficit at 1.1 percent of GDP. Unemployment was recorded at 2.5 percent (2004). External debt at $593 million USD (2004). Net electricity exporter (surplus) of 1.4 billion Kwh (2004) and likely to dramatically increase with Tala hydropower output. Bhutan is a net oil importer. India is Bhutan’s largest trade partner.
REGIONAL ANALYSIS: China, India
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KNOWLEDGE: please contact BankINTRO.com for details.
CURRENCY: ISO Symbol ‘BTN’, Bhutanese ngultrum. At time of review on
August 7, 2007, the ngultrum had an exchange value of 40.415 BTN to the US-dollar (USD) and/or 55.7 BTN to the Euroland euro (EUR). The ngultrum remains tied to the Indian rupee at par (1.0). The currency regime follows that of an exchange peg with the Indian rupee as the anchor currency which has helped to keep inflation relatively low for Bhutan. Currency restrictions are likely to be liberalized going forward as the economy strengthens for Bhutan. The ngultrum is a non-convertible currency except with India due to the exchange peg. The Royal Monetary Authority of Bhutan commenced operations in 1983 and is responsible for the issuance of domestic national currency. Historically, barter has functioned as an alternative method to settle transactions within Bhutan.
CURRENCY HISTORY: the ngultrum came into circulation in 1974 when it replaced the then circulating Indian rupee at par. Recent historical exchange quotes include year 2006 at 45.27 BTN to the USD, year 2005 at 44.1, 2004 at 45.31, 2003 at 46.58, 2002 at 48.61, year 1998 average at 41.2 BTN, 1997 at 36.3 BTN.
CURRENCY FORECAST: exchange peg likely to remain in place for this tiny economy of Bhutan. BankINTRO.com forecasts modest appreciation by the Indian rupee and ngultrum exchange peg to the USD as the Indian & Bhutan economy garners strength and accumulates wealth via high economic growth The USD remains vulnerable to a further depreciation upwards of 20 percent to a trade weighted basket of currencies due to trade mal-investments and the potential for hundreds of billions in wealth write-offs to financial firms related to the American sub-prime mortgage fiasco. For more detailed information on the Indian rupee, please visit INDIA in this BI.C currency index.
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