COUNTRY BACKGROUND - Gross National Happiness Commission

Figure 2.5
Economic Performance
2.23 Bhutan's trade deficit has been covered by inflows of foreign aid. Foreign aid ranged from Nu 989 m in
1984/84 to Nu 1086.3 m in 1988/89. Aid from India always exceeded the aid from other sources, underscoring the
importance of India as the major donor. The overall balance remained in surplus throughout the period as shown in
Figure 2.5, signifying an increase in the Ngultrum value of foreign exchange reserves. Only in 1988/89 did nonconcessionary
borrowing make a significant contribution to the financing of the current account.
2.24 Bhutan's foreign exchange position is strengthened not only by the volume of foreign aid received, but also
by the fact that aid from donors other than India is denominated in convertible currencies, while much of the
expenditure that it finances is denominated in rupees. As a result, Bhutan was able during the 1980s to build up
substantial reserves of convertible currency. However, rupee reserves declined steeply in the later years of 6FYP.
2.25 The Ngultrum has remained pegged to the Indian rupee at par since its introduction. Consequently its value
against convertible currencies has followed that of the rupee. Likewise, given the open border and common
currency area between India and Bhutan, inflation in Bhutan closely mirrors India's, and has averaged around
10% p.a. during most of the 1980s. The value of rupee reserves tends to be exaggerated by the official exchange
rate between the rupee and the US dollar; equally, the large decline in the dollar value of rupee reserves in 1991
reflected the devaluation of the rupee.
V. Economic Developments during 1989—91V. Economic Developments during 1989—91
2.26 Comprehensive economic statistics are not yet available for years later than 1989. This is unfortunate, since
the second half of the 6FYP period saw a distinct deterioration in the economic and budgetary situation and
significantly changed the outlook for the Seventh Five Year Plan.
2.27 Several factors contributed to the problems RGOB was facing as 7FYP was being prepared:
(a) Economic growth tapered off after the spurt provided by the Chhukha project.
(b) There was a decline in aid receipts from India, which tended to offset the boost to domestic revenues from
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