SAARC CHAMBER OF COMMERCE AND INDUSTRY

Bhutan Economy

Statistical Abbreviations and Symbols

e estimated
p provisional
r revised estimates
- the figure is zero or less than half the final digit shown or the item does not exist or the figure is not available
. the figure is unknown or is not meaningful or is not to be published
-- change within a time series, causing a break in continuity
+ fiscal year, July-June

Discrepancies in the totals are due to rounding

PREFACE

This March 2003 issue of the Monthly Statistical Bulletin contains updates on the Monetary Aggregates for February 2003 and other macroeconomic data that are available by March 2003. A special feature in this issue is a profile on Bhutan's Public Limited Companies.We thank all those who have contributed to the information contained in this Bulletin

Key Economic Indicators

COMMENTARIES

Monetary Developments

The slowdown in M2 growth, beginning December 2002, continued into the second month of 2003, becoming more pronounced, from 26.5 percent in January 2003 down to 12.5 percent in February. The slowdown reflected fall in growth of narrow money (M1) and quasi-money on the component side and net domestic assets on the counterpart side.

1.On the component side, of the two major components - narrow money (M1) and quasi money (QM) - the annual growth in M1continued to slow down to 18percent, from 37.8 percent in January 2003. Among the sub-components of M1, the fall in annual growth of demand deposits from 51.3 to 19.3 percent far outweighed the rise in growth of currency in circulation outside banks (1.7 percent in January to 8.3 percent in February 2003). This resulted in a lower overall growth of M1 in February. Unlike the previous month, annual growth in QM fell from 16.8 percent to 7.9 percent in February 2003. The decline in time deposits of government corporations was a major contributor of this fall. On the other hand, annual growth of foreign currency deposits increased marginally from 36.9 to 39.2 percent in February 2003. However, being the weaker sub-component, the effect of this increase on overall quasi-money was limited.

2. On the counterpart side, as shown in the table, February 2003 recorded a decline in growth of all the major components - net foreign assets (NFA), domestic credit (DC) and other items, net (OIN) - from the previous month. The fall in annual growth of NFA was mainly on account of the decline in Indian Rupee assets from Nu.3948 million in January to Nu.3154 million in February. Convertible currency assets on the other hand increased, albeit marginally from Nu.12819 million to Nu.12853 million. Annual growth in domestic credit slowed to 92.7 percent in February 2003 from 136.8 percent in the previous month. The decline reflected the fall in growth of credit to private sector (including joint corporations), from 45 percent in January to 37.3 percent in the review month.

Examining the sector-wise breakdown of domestic credit, the government continues to be reflected as a net depositor with the banking system. As explained in our previous report, this is due to the definition of government deposits in the monetary survey, which includes both budgetary and non-budgetary deposits of the government, an issue still being reviewed. While the actual government budget account is in deficit, it is the non-budgetary part/other government departments that are net depositors, giving the impression of the overall government being a net depositor in the banking system. The government continues to rely on advances from the BOB (Nu.917.6 million in the review month) to meet its temporary budget shortfalls, over and above outstanding government securities worth Nu.370 million. The actual/budgetary deposits for February 2003 was Nu.130.3 million, which was held with the RMA.

Performance of Commercial Banks

In February 2003, the annual growth of total assets/liabilities of the commercial banks remained more or less unchanged from the previous month at 16 percent. In the same period,the commercial banks' total reserves with the RMA were Nu.6369 million, which represents around 41 percent of their total assets. Of that, around 59 percent were absorbed by the RMA through the RMA bills and the CRR. The rest were held as other deposits, included in the RMA's definition of excess liquidity. In addition to the reserves held with the RMA, the banks held foreign assets (both rupee and convertible foreign currency) worth Nu.4269 million in the review month. Hence, like the previous month, even as domestic credit is improving and the reserves growth with the RMA is declining, excess liquidity continues to persist in the banking system due to the lack of investment avenues in the economy and its concomitant problems. The commercial banks' credit to asset, as well as to deposit ratio have been increasing over the past few years with the latest figures -
for February 2003 - being 31 percent and 39 percent, respectively. The total deposit liabilities of commercial banks amounted to Nu.12331.1 million in February 2003, down from Nu.12927.2 million a month ago. Of the total deposits, around 17 percent, were held by individuals as demand deposits and 22.6 percent as time deposits. Government corporations accounted for around 15.7 percent of demand and 20.5 percent of time deposits with the rest going to other sectors

Performance of Non Bank Financial Institutions

As per the latest available data - January 2003, the combined assets/liabilities of RICB and BDFC was Nu.2339.4 million, an increase of 23 percent as compared to the same period last year. This increase was mainly on account of a rise in their claims on the private sector, which went up from Nu.1650.1 million in January 2002 to Nu.2085.53 million in January 2003, which works out to 26.4 percent. In January 2003, the credit accounted for around 90 percent of their total assets. There was a marginal increase in their reserves as well.
Comparison of the sectoral investment by the financial institutions for January 2003 with the same period in the previous year shows an increase of 39 percent (from Nu. 4397.8 million in January 2002 to Nu. 6095.00 million in January 2003). The largest share went to the building and construction sector followed by the manufacturing, trade & commerce sector, and by the service and tourism sector.

Gross International Reserves

Latest available statistics indicate an increase in gross international reserves of around 8 percent, from USD 316.9 million in June 2002 to USD 342.9 million in February 2003. Of the total reserves, USD 269 million were convertible currencies, while the rest were Indian Rupee reserves. Examining the monthly fluctuations however, total reserves continued to decline, by around 2 percent in February 2003 following a 1.4 percent decline in the previous month.

As of February 2003, the total reserves are estimated to be sufficient to finance 22 months of imports. Further, in terms of convertible currency reserves only, about 76 months of imports from countries other than India can be financed. In contrast and because the bulk of the country's imports are from India, rupee reserves can finance only about 6 months of imports from India.

Tourist Arrivals/Revenues

Following the recent war in Iraq and SARS outbreak, the Bhutanese tourism sector continued to suffer on the onset of its first season, with March tourist arrivals and earnings recorded at 654 and USD 0.8 million.Although this is an improvement from the month of February 2003, these figures fall short of its performance during the same month of March 2002, with 868 visitors and convertible currency revenue of USD 1.1 million.

BTN/USD Exchange Rate

The BTN appreciated by around 0.2 percent against the USD since February 2003. The BTN has been gradually appreciating against the USD since June 2002.

Interest Rates in India

As per the Weekly Statistical Supplement of the Reserve Bank of India, the prime lending rates relating to the five major banks have remained unchanged at 10.75-11.50 percent since November 8, 2002. The deposit rates however, declined further (to 5.25-6.25) in the second week of March 2003, after remaining in 5.50-6.25 percent range since the second week of January 2003.

However, in annual terms, the prime-lending rate of the five major banks declined to 10.75-11.50 percent towards the end of March 2003, as compared to 11-12 percent in the same period last year. There was a reduction in deposit rates as well, from 7.50-8.50 to 5.25-6.25 percent during the same period.

Other Macro Economic Indicators

There are no updates on the data on GDP, prices, and the balance of payments since the last report. The real gross domestic product (GDP) growth estimates for 2002 remains at 7.7 percent with annual inflation at 2.3 percent in December, the same year.
In the external sector, the current account shows an overall deficit of Nu.406.5 million.
The stock of external debt outstanding stood at USD 359.5 million for the quarter ending March 2003, reflecting an increase of USD 27.8 million from the previous quarter. Out of this total figure, convertible currency debt stock increased by USD 10.8 million and Rupee debt by Rs.760.6 million.

SPECIAL FEATURE

Profile on Bhutan's Public Limited Companies

This report presents a broad and general overview of a few of Bhutan's public limited companies and their impact on the Bhutanese economy. Till date, fifteen companies are listed with the Royal Securities Exchange of Bhutan. Of the fifteen, usable data - pertaining mainly to sales and production - of only six companies could be obtained. The six companies include Bhutan Carbide and Chemicals Ltd (BCCL), Bhutan Ferro Alloys Ltd (BFAL), Penden Cement Authority Ltd (PCAL), Bhutan Polythene Company Ltd (BPCL), Bhutan Board Products Ltd (BBPL) and Druk Satair Corporation Ltd (DSCL). The report will therefore, focus on these companies - all falling under the manufacturing sector - and will attempt to determine the overall impact on the economy in terms of contributions to GDP, government revenue, the external sector, and employment generation.

Background: Overall

The Royal Securities Exchange of Bhutan (RSEB) was formally established in 1993 in an attempt to boost private sector development to ultimately become one of the country's main engines of economic growth and development. The RSEB, like other similar organizations in the world, was intended to assist in creating a capital market for the purpose of facilitating public participation in holding securities of public and private companies.

The RSEB began with a modest participation of four companies - BBPL, BCCL, PCAL and RICB - with a market capitalization of Nu.493 million. As of 2002 however, fifteen companies are listed with the RSEB with a market capitalization of around Nu.3156 million.
In terms of shareholders, the number grew from 2235 in eight companies to 6610 in thirteen companies between 1995 and 2001. Shareholding patterns reveal that either the promoter or the RGOB backs a majority of the holdings, response from the public being relatively weak. Statistics for 2001 indicate that promoter has backed around 23 percent of the companies' total paid-up share capital, while government shareholdings accounted for around 29 percent. General public accounted for around 20 % with the rest going to other holders such as the financial institutions (FIs), institutional investors (II) and foreign investment (FI).

Background: Six Listed Companies

response from the public being relatively weak. Statistics for 2001 indicate that promoter has backed around 23 percent of the companies' total paid-up share capital, while government shareholdings accounted for around 29 percent. General public accounted for around 20 % with the rest going to other holders such as the financial institutions (FIs), institutional investors (II) and foreign investment (FI).
Background: Six Listed Companies
In 2001, the market capitalization of the six listed companies was Nu.1815.8 million, representing about 30 percent of the total and an increase of 92 percent from the previous year. At the same time, the traded volume in the secondary market increased by almost six times, to Nu.31001 million in 2001, from Nu.12481 million in the previous year.

This marked increase may be suggestive of a rising trend in the participation of the general public in the secondary market. On the other hand, the number of shareholders of the six listed companies decreased, albeit slightly, from 3706 in 2000 to 3687 in 2001. This decline was mainly on account of the decrease in shareholders of PCAL and BFAL.

Face Value/Book Value vs. Market Value

Among the six companies, there is a marked variation in the face value and the market price of the shares of BCCL and PCAL in 2001.This variation appertained to a high face value of the

shares and high dividends payout ranging between 28-98 percent. This in fact pushed up the market price of these companies to about Nu.1000 - Nu.5000 per share. Other companies such as BFAL and BBPL did not have a remarkable variation between the face value and market price, with the book value remaining relatively higher than the actual face value

Overall Contribution to the Economy

DATA
Table 1. Monetary Survey- Aggregates & Components