Bhutan’s economy to grow by 7.5% in 2023

The projection is as per the Asian Development Bank (ADB)

The Asian Development Bank (ADB) on Wednesday projected a 7% collective growth for South Asian economies in 2022, with Bhutan growing by 4.5% in the current fiscal year before picking up to 7.5% the next year.

The ADB estimated the Gross Domestic Product (GDP) growth at 4.5% this year, assuming that the economic activities will resume and gradually grow in the tourism sector of the country.

However, with the operation of new hydropower plants next year and the decision to reopen the country to international tourism, the ADB expects the country’s GDP to grow further in 2023.

According to the Asian Development Outlook (ADO) 2022, Bhutan’s services sector is projected to grow by 5% this year as the COVID-19 mobility restrictions are expected to be removed during the second half, which would boost consumer demand.

“The government is expected to implement a new COVID-19 management strategy from April that will progressively relax restrictions and avoid future lockdowns unless hospitalization rates go up beyond certain levels,” states the report.

The industry is forecast to grow by 4% on stronger construction activity, estimated to rise 5.2% on a surge in budgeted capital spending as supply chain disruptions subside and labor shortages lessen.

With the closure of the large Tala Hydropower Plant for maintenance from January to March, it is expected that the electricity production growth is expected to be slower.

In addition, agriculture growth will also slow down to a projected 2.6% due to unfavorable weather.

The report states that on the demand side, private consumption expenditure is forecast to grow by 6% in 2022 and 6.5% in 2023 as consumer confidence revives on a rebounding economy and the further lifting of the COVID-19 restrictions.

“Fixed investment is expected to grow by 6.5% and grow further in 2023,” ADB states, adding that the 39% increase in the budget allocation for capital spending in Financial Year (FY) 2022 is the highest during the 12th Five Year Plan period of 2018-2023.

“While there may be shortfalls in implementation, capital spending is expected to support the expansion in fixed investment. Because of the constitutional requirement that current expenditure should always be funded by domestic revenue; current expenditure is budgeted to fall by 18.1% in the current fiscal year,” the report states.

The report also states that the budget deficit is projected to widen to 9.4% of the GDP in the current Fiscal Year from 6.3% in FY2021. “The monetary policy measures to stimulate the economy during the COVID-19 pandemic will continue up to mid-year, and then give way to targeted and selective monetary measures.”

Further, the average inflation in 2022 is projected at 7% amid persistent upward pressure on food and non-food prices.

A normally functioning supply chain should stave off the price spikes that were a feature of last year’s inflation, states the report.

The report also mentioned that inflation will remain elevated this year due to the spillover effects of inflationary pressure from India and high global oil and commodities prices. Inflation is expected to decelerate in 2023 due to easing global oil and commodity prices; the rate is forecast at 5.5%, according to the ADO.

Meanwhile, the growth in South Asia is projected to slow to 7% in 2022, before picking up to 7.4% in 2023.

“South Asian economies are expected to expand collectively by 7% in 2022 and 7.4% in 2023, with Bhutan the subregion’s economy expected to grow 7.5% next fiscal year,” the ADO report stated.

According to the ADB, developing Asian economies are forecast to grow 5.2% this year and 5.3% in 2023, thanks to a robust recovery in domestic demand and continued expansion in exports.

However, uncertainties stemming from the Russian invasion of Ukraine, the continuing of COVID-19 pandemic, and tightening by the United States Federal Reserve pose risks to the outlook, ADB Outlook stated.  “Governments in the region will need to remain vigilant and prepared to take steps to counter these risks.”

In addition, the two prolonged lookdowns in Bhutan from mid-January to March to contain the spread of the COVID-19 Omicron variant have clouded the outlook for 2022. The roll-out of booster shots and the vaccination of children ages 5–11 are, meanwhile, in progress.  

Kinley Yonten from Thimphu