Bhutan - Foreign trade

After the 1960 government ban on trade with Tibet, Bhutan's external sector became almost exclusively oriented toward trade with India. With the completion in 2002 of the second hydroelectric power project financed by India—built largely with Indian migrant labor and designed to deliver the majority of its power outputs to India—India's dominance in terms of exports has remained over 90%. Import sources, however, have become increasingly diversified, with non-Indian sources—particularly First World industrialized countries—accounting for nearly 30%, up from about 20% in 1998. The increased diversity in import sources corresponds roughly to the increased diversity in foreign aid sources, which in the 1960s had been virtually monopolized by India. For 2000 the US Central Intelligence Agency (CIA) identified the main export destinations as India (94%) and Bangladesh, and the main import sources as India (77%), Japan, United, Germany, and the United States.

Bhutan's merchandise trade balance has been persistently negative, although for three years, 1996, 1997, and 1998, the country registered a surplus in its trade with India due to the combination of power exports and the lack, until 1998, of major construction projects. With the start of construction on the Tala Hydroelectric Project (THEP) in 1998, scheduled to be online with a 1020 MW capacity in 2004 or 2005, Bhutan has incurred large and increasing trade deficits. As a percent of GDP, Bhutan's trade deficit has increased from a low of 4.3% in 1996 to ratios of 14.2% in 1999, 16.7% in 2000, and 22.6% in 2001. The 2001 trade deficit amounted to $81.7 million, according to the IMF, 56% of which ($45.7 million) was attributable to a trade deficit with India.Bhutan's principal exports include electric power (to India), cement, cardamom, timber, gypsum, dolomite, coal, handicrafts, cement, fruit, vegetables, precious stones, spices, ferrosilicon, calcium carbide, particle board, some preserved food, alcoholic beverages, yak tails for fly whisks, and yak hair. The country's principal imports are fuel and lubricants, grain, machinery and parts, vehicles, fabrics, and rice.