The Gross Domestic Product is projected to grow by 6% during the 12th Five Year Plan period.
Presenting the State of the Nation report to the joint sitting of the Parliament on Wednesday, Lyonchhen Dr. Lotay Tshering said that our economy achieved a growth of 7.4% over the past two decades, labeling Bhutan as one of the fastest growing economies in the region.
Lyonchhen said that the economy grew at the rate of 4.6% in the financial year 2018-19 and is projected to grow by 6% during the 12th FYP period. Bhutan’s GDP stands at Nu 164.63bn in 2017.
The report states the prices have remained stable as indicated by slower increase in Consumer Price Index(CPI) which stood at 2.7% in 2018, lower by 2.2% points compared to 2017, mainly contributed by food inflation at 5% while non-food recorded a marginal increase of 1.3%.
The report states as per the latest labor force survey 2018, the country’s employment rate stands at 96.6% of which male and female employment rate are 97.3% and 95.8% respectively. The overall youth unemployment rate stands at 15.7% (4,921 persons). Of the total unemployment youth, 49.7% are males and 50.3% are females.
In addition to the existing 11,1012 job seekers, 56,703 new job seekers are expected to enter the labor market over the 12th FYP period, thereby taking total number of job seekers to 67,805, of which 62,734 are youth job seekers.
Between July 2018 and March 2019, 3,454 job seekers were registered with the labour ministry. Of these 2,253 job seekers were directly placed in various private, corporate and government organizations and 346 through direct employment program under the guaranteed employment program. A total of 1,011 Bhutanese have been sent to work overseas between July 2018 and April 2019.
“The government strives to reduce youth unemployment from the present 15% to less than 6.5% in next five years,” Lyonchhen said, adding that towards that, besides creating employment opportunities in different sectors of the economy, education and skills are also being aligned to fit job demands.
Of the estimated resources of Nu 42.9bn for the financial year 2018-19, around 80% is from domestic revenue and remaining grants. Tax revenue forms major part of domestic revenue which accounts 77%, accounting to 13.8% of Gross Domestic Product for the fiscal year.
The report also states the debt level remains within the prescribed threshold of Public Debt Policy 2016. The total public debt as of end of June 2019 is estimated at Nu 209.3bn, of which Nu 201.3bn is external debt (104.4% of GDP).
The hydropower debt stock increased to Nu 154.3bn in FY 2018-19, an increase of 17% mainly on account of capitalization of accrued interest during constructions for (IDC) Mangdechhu Hydropower (MHP) and the disbursement for on-going hydropower projects.
The total accumulated IDC for MHP estimated at Nu 12.2bn has been added to the hydro debt stock, significantly increasing the total debt stock also increased by Nu 6.2bn or 15% compared to previous fiscal year due to program borrowing disbursements for budget support and on-going projects.
Balance of Payment
The report states over the last decade, the overall balance of payment has remained positive averaging at 3% of GDP on account of higher capital and financial flows in the form of hydropower disbursements and grants despites persistent negative current account balance, which was -12.8% of GDP from 2007-08 till 2017-18.
Current account balance was largely driven by trade deficits resulting from huge imports of hydro-related investments and imports, the situation are likely to change. With the completion of major constructions, imports related to hydropower are expected to reduce while export base would increase with commissioning of MHPA and Puna I and II in the medium term.
In FY 2018-19, the current account balance is estimated to improve to a deficit of 13.4% of GDP compared to 18.4% of GDP in previous year.
The report states as of March 31, 2019, the gross international reserves stood at USD 1,082.2mn, which is adequate to cover 13.7 months of merchandise imports or 23.7 months essential imports meeting the constitutional requirements.
However, in FY 2016-17 to FY 2018-19, the accumulated of reserves were lower as inflow of funds through financial and capital accounts were adequate to finance the current account deficit. In the medium term, the reserve is projected to grow by 13% on average and reach Nu 124,430mn, equivalent to USD 1,800mn by the FY 2021-22.
Lyonchhen mentioned that in order to promote a stable macro-economic growth and efficient public financial management resources the preparatory works for possible introduction of Goods and Services Tax (GST) to broaden tax base is underway.
The government has directed the ministry of finance to put in place a comprehensive guideline for hospitality and entertainment budget to promote financial thrift.
A finance committee has been instituted to approve project costing up Nu 50mn in 10 ministries, 20 dzongkhags and autonomous agencies.
The public financial management system is being enhanced which e-payment feature to eliminate all forms of manual interventions including manual cheque payment, improve services delivery, automate bank reconciliation process, provide real-time financial information and improve decision making process.
The negotiation for development policy credit of USD 30mn has been successfully completed and will be disbursed by end June 2019, which will be very critical for financing the fiscal deficit.
The government approved interest free borrowing from International Fund for Agriculture Development to finance the funding gaps in agriculture related programs in 12th FYP.
The government has also approved policy based lending of USD 30mn from ADB for FY 2019-20.
Dechen Dolkar from Thimphu