By Nimu, TON Bhutan

A rising trade shortfall and rising import costs have over shadowed Bhutan’s economic shape. The small Himalayan nation is desperately trying to control prices of essential commodities. Bhutan remains engrossed on its tourism and hydropower sectors, which produce revenue from outside the country. Bhutan the South Asian nation that is perhaps best-known for its philosophy of promoting gross national happiness over gross domestic product (GDP) is currently facing financial headwinds.

With a populace of rarer than 800,000 people, a worldwide economic fall down and countrywide Covid lockdowns. The supply chains in the landlocked country wedged between China and India have been sternly impacted. Bhutan's small- and medium-sized businesses have been struggling to keep afloat. The situation in the country cannot be compared to that of Sri Lanka for now. Sri Lanka's debt-laden economy collapsed after it ran out of money to pay for food, fuel and medicine, igniting months of demonstrations.

However, Bhutan was facing an alike set of economic problems to those currently affecting most national frugalities. The war between Russia and Ukraine has deteriorated the situation particularly with mounting petroleum prices. "Like other countries in South Asia, Bhutan's economy is also seeing inflation, financial hindrances and damage of jobs.

A strengthening dollar and falling Indian rupee to which Bhutan's Ngultrum currency is pegged also leading to higher import costs. That's far from ideal for a country that is deeply dependent on products from abroad. The constraints enforced by India on wheat exports have augmented qualms of a further increase in local prices. There is serious anxiety about food supplies.

Bhutan remains focused on its hydropower and tourism sectors, which make revenue from outside the country. Meanwhile, the share of Bhutan's manufacturing sector in terms of GDP has remained motionless for over a decade, while the industrial sector was driven mainly by construction, mining and electricity. Such a framework has been making the economic structure vulnerable to sectorial and external shocks, since GDP, exports and government revenue are mostly generated from just two sectors.

The government Bhutan was not in favor of banning imports but would do its best to help protect foreign reserves. At the same time emphasizing that the Himalayan kingdom was headed towards an "uncharted destination. The annual budget Tshering recently presented showed Bhutan's highest-ever fiscal deficit of 22.882 billion Nu (€283 million) — 11.25% of the country's GDP.

Data released in July by the Royal Monetary Authority of Bhutan showed foreign exchange reserves shrunk to $970 million (€955 million) at the end of December from $1.46 billion in April 2021 while total external debt rose to $3.2 billion from $2.7 billion before the coronavirus pandemic.

The country has adequate foreign assets to meet the import of vital goods for 14 months. Bhutan's constitution mandates the country to uphold enough foreign currency reserves to meet 12 months of imports. Nepal is an import-dependent country and will have to begin to look at other sectors and reformulate polices that can bring revenues to resuscitate the economy. Investing in new technology for agriculture can be a start.

For now, efforts are focused on solving the issue of trade shortfall to stop Bhutan from plummeting into its foreign currency reserves. The tourism sector has been gravely affected, and the void brought about a standstill in infrastructural projects because the pandemic has affected livelihoods.

Tourism which employs over 50,000 people and is one of the highest contributors to Bhutan's incomes was hit the hardest of any sector. Revenue from tourism plunged by 41% in 2019–2020 compared with the previous year. Only 28,000 visitors came to Bhutan in 2020, generating a revenue of $19 million (€18.67 million).

That was down significantly from 2019's figure of 315,599 tourists, which generated $225 million, according to government figures. The mountainous nation will reopen to international tourists from September for the first time since the pandemic began more than two years ago.

However, rates have been upped, and a sustainable development fee of $200 (€196) will be charged per tourist per night a hike from the $65 fee that was charged for three decades. Bhutan's economic development is linked to the growth of its hydropower sector. The country exports about 70% of energy generated to India.

India is also Bhutan's largest export market, the most important trade partner, accounting for 50% of Bhutan's trade, and one of the top foreign investors in the country, while Bhutan has been crucial to India's Neighborhood First and Act East policies, which aim to boost trade and energy links in the region. There are qualms that a protracted economic crisis could bitter relations between India and Bhutan,

Bhutan has so far preserved an exclusive alliance with India, while having impartial dealings with China. In this situation. It is yet to see that in this scenario will India help the Bhutan, with whom it has a special relationship. In this situation China is in a position to take advantage of this whole situation and help the Bhutan in meeting its economic challenges which would uphold the mutual relations in the future.