Bhutan’s economy is on the right recovery track, growing slowly but steadily, post Covid. This was spelled out by the Asian Development Bank’s Vice President of Operations (VPO1), Shixin Chen, who was in the country to take stock of the ADB’s operations in Bhutan and to discuss possible future engagements with the government on May 26, 2023.
According to the ADB, the Bhutanese economy has been recovering well from the pandemic after the economy contracted to 10.1% in 2020. Bhutan’s economy grew by 4.1% in 2021 after a record contraction of 10.1% in 2020, due to the Covid -19 pandemic.
As per the ADB’s Overview of the Economy and Current Economic Development, Bhutan’s economy grew at an average annual rate of 5.5% between 2011 and 2019, which was slower than the 8.7% average growth between 2001 and 2010. In the 2000s, growth was driven mainly by the construction and operationalization of large hydropower projects. Strong performance of the services sector, especially tourism, also contributed to the growth. Between 2016 to 2019, there was a slowdown in hydropower construction, lower electricity production due to inadequate rainfall in some years, and weak growth in the manufacturing sector.
During the post Covid period, the VPO said that activities have picked up. He underlined that there is no supply disruption to resume economic activities. Bhutan had closed the crossing points for tourists in early 2020. This was to prevent the coronavirus from spreading among its population of less than a million people. The supply was disrupted after the border was closed. Bhutan and India share a border of almost 700 kilometers along the latter’s north-eastern provinces of Assam, Arunachal Pradesh and Sikkim and the eastern state of West Bengal, which was closed.
Bhutan opened for foreign tourists on 23 September, 2023 along with a new tourism policy to keep carbon footprints under control. Since then, the supply chain was back to normal and the developmental activities picked up.
Another evidence that Bhutan is on the right track to economic recovery, which the VPO pointed was constructional activities, which he said are back in full swing.
During the pandemic, the cost of construction materials increased by 30 to 80%, as per the survey conducted by the Construction Association of Bhutan (CAB). Now the construction materials and machineries are procured on time according to the VPO.
The industry was also impacted by lack of skilled labourers and high wage rate, charged by both the available expatriate and local workers. The VPO said that with workers back to work, economic growth of the country will be positive.
Other potential sectors that are back on track are the private sector, agriculture business and others that will require identifying, acting on the key constraints which would be challenges.
As per the earlier projection of ADB, economic growth is projected to increase to 4.7% in 2022 with the reopening of the economy and continuing demand stimulus by the government. A slight slowdown to 4.6% growth is projected in 2023. This is partly due to slower-than-expected recovery in the tourism sector. Following the reopening of borders, 32,600 tourists arrived in Bhutan during the period 23 September 2022 to 28 March 2023. This is roughly 20% of the tourist volume received over the same period in 2019–2020. Anecdotal reports from major hotels show that they are operating at less than 20% capacity, with low advance bookings as the high season approaches.
Meanwhile, the Government of Bhutan took various monetary and fiscal measures to compensate for the loss of jobs and ease the pandemic’s adverse impact. The finance ministry in its budget report for the fiscal year 2022-23, had projected the real gross domestic product (GDP) to grow at 3.7 percent in 2021 and 4.5 percent in 2022 respectively. In 2023, the economic growth is projected at 3.88 percent.
Further, in the Country Partnership Strategy (CPS), 2019–2023, the Board of Directors of ADB endorsed the CPS, 2019–2023 for Bhutan on 13 September 2019. It is aligned with Bhutan’s 12th Five Year Plan and its national key result areas, and ADB’s Strategy 2030. The strategic objectives of the CPS are to foster economic diversification, and reduce spatial and social disparities by focusing on three pillars: dynamic economic reforms to foster a resilient and diversified economy; improved connectivity to provide access to information and markets; and greater inclusiveness through more equitable socio-economic development.
Sangay Rabten from Thimphu