Economic growth projected at 4.1% for FY 2021-22

The projected growth will be mainly fuelled by investments which accounts for 44% of the GDP, says Finance Minister

The Gross Domestic Product (GDP) growth is projected to rebound to 4.2% in 2021 and moderate to 3.9% in 2022.

This is as per the Budget Report for Financial Year 2021-22 that Finance Minister Namgay Tshering presented to the parliament yesterday.

The FY 2021-22 budget aims to ‘Ensure Sustained Economic Stability for a Resilient Recovery’.

With the successful vaccination program seen as a significant step towards providing herd immunity, economic activities are expected to pick up, according to the report. A gradual economic recovery is anticipated, supported by the mass vaccination program of the second dose, higher capital investment and government consumption, and ongoing fiscal support. Therefore, GDP growth in 2021 is projected to rebound to 4.2% and moderate to 3.9% in 2022.

During the presentation, the minister said economic growth was estimated to register largest contraction in 2020 triggered by the pandemic.

The report states while various containment measures including two nationwide lockdowns effectively controlled the number of COVID-19 cases in the country, economic activities almost came to a standstill.

It states that the service sector experienced its steepest decline 7.9% as demand in consumer-driven sectors like retail, accommodation, and transport were affected. Industries that rely on foreign labor and raw materials led to a decline in industrial output further aggravated by a fall in demand, both international and domestic. 

It also states that against this backdrop, the economy entered a brief recessionary period in 2020 as the growth estimate was downgraded from -2.1% to -6.3%. As such, the economy loss in 2020 from economic sectors relative to 2019 is estimated at Nu 4.52bn.

The aggregate demand also remained subdued as household and public consumption is estimated to fall by -24% and 3.1% respectively.

However, the fiscal and monetary measure underpinned by Druk Gyalpo’s Relief Kidu has provided the necessary impetus to minimize the immediate impact on household and public consumption, according to the report.

The Lyonpo said that in Bhutan, with the mass inoculation and the government’s expansionary fiscal stance in FY 2021-22, they expect substantial economic recovery in the short to medium term.

“Therefore, the GDP is projected to rebound to 4.2% in 2021 reflecting high government investment through capital spending,” the Lyonpo said.

Lyonpo Namgay Tshering also mentioned that the projected growth will be mainly fuelled by investments which accounts for 44% of the GDP. In addition, government expenditure, as the main driver of growth, accounts for 36% of the GDP.

On the supply side, scaling up of investments through government capital spending is expected to generate economic activities and induce private investment growth.

The fiscal stimulus of allocating a higher share of the capital budget of about 33% of the plan outlay for FY2021-22 budget is also expected to boost government construction besides inducing aggregate demand. Both the public and private demand is expected to rise in the medium term as economic activities pick up, resulting in increased export and import of goods and services.

Further, the Lyonpo mentioned that the implementation of projects under the National Credit Guarantee Scheme (NCGS) is expected to support and sustain the economic recovery and provide a boost to the economy.

Economy grew by 5.5% in 2019 compared to 3% in 2018, an increase of 2.4% points. The growth was mainly driven by steady performance in the services sector, higher output in the industry sector, primarily with the commissioning of the Mangdechhu Hydro Power project, and increased government spending.

As per the IMF estimates, with the anticipated availability of vaccines by summer 2021 and additional fiscal stimulus in a few large economies, the global growth is projected to rebound to 6% in 2021.

Similarly, the IMF has also projected the Indian economy to rebound and grow at 12.5% in 2021.

Dechen Dolkar from Thimphu