Bhutan’s economy likely to make U-shaped recovery

The growth trajectory is projected to rebound to a pre-covid level at 5.5% in 2022

Bhutan’s economy will likely make a U-shaped recovery during the post-pandemic, according to local economist Dr. Damber S. Kharka.

The expert characterized the revival of the economy as one making a U-shaped recovery given that some sectors are gradually improving, while others continue to languish.

“We know that all economic sectors are not equal in terms of growth potentials. The inflation index is calculated covering the baskets of goods and services representing all economic sectors with specified weights,” he said.

Meanwhile, a U-shaped recovery is a form of economic recovery where the recession portion typically lasts for several quarters with a slow return to growth. It is measured by economic indicators like the GDP, inflation, employment levels, and industrial output.

Dr. Damber S. Kharka divulged that the economic growth is expected to rebound by 3 to 4% in the first one or two years followed by an increased growth rate.

“I think provided investment in potential economic sectors takes place immediately after the pandemic. Therefore, I see the U-shaped happening in terms of the overall GDP growth,” he said, adding that if the government had invested substantially in areas with a low gestation period during or just before the pandemic, then it would be V-shaped.

“However, I don’t think such investments have taken place in the last few years. So, realizing V-shaped is quite unlikely,” he said, adding that inflation varies among sectors, and it is increasingly becoming clear that the stock rallies caused by monetary easing are not reflecting the state of the real economy.

In addition, he explained that at the individual level some sectors are more impacted by inflation, including the transport sector, construction industry, and consumers’ baskets.  As a result, some sectors will enjoy faster and higher economic growth than others.

“This creates a bit of imbalance in the growth pattern. People associated with the more impacted sectors will also be affected due to unequal opportunities to earn and save. That leads to widening inequality,” he said.

According to the Royal Monetary Authority (RMA)’s annual report, with a gradual recovery in the industrial and service sectors followed by the agriculture sector, the growth trajectory is projected to rebound to pre-covid level at 5.5% in 2022.

“Boosting private sector participation, generating employment, and improving aggregate demand needs to be accelerated through substantial fiscal stimulus,” the report states.

However, the fiscal balance in the FY 2022/23 is expected to be positive at 0.4% of the GDP. The domestic revenue is estimated to grow by 7% from a deficit of 8% in the FY 2020/21.

In addition, RMA expects that with accelerated government investment activities, economic activities are anticipated to pick up in various sectors, contributing to the growth in tax revenue.

Further, it is anticipated that economic activities are likely to pick up on account of mass vaccination and the reopening of the economy in a calibrated manner.

Economic Affairs Minister Loknath Sharma said that the government’s focus is on employment generation, export promotion, import substitution and automation, and digitalization of the economy in the country.

Lyonpo also shared that the government is working towards creating an enabling environment for businesses, investment in productive sectors, enhancing access to finance, entrepreneurship programs, skill development, stimulus spending, and focusing on areas such as manufacturing, construction, tourism, agriculture, and mining, among others.

“The economy will gradually grow initially and will pick up thereafter in terms of the total GDP with imbalanced growth sector-wise and unequal benefits and impact across different sections of the people,” Lyonpo said.

Kinley Yonten from Thimphu