Economic growth projected at 4.6% in FY 2024-25

Economic growth projected at 4.6% in FY 2024-25

Real GDP growth rate in the meantime projects a fluctuating trend in percentage points, while tourism will determine the trajectory of the economic bar chart

The country’s economic growth is projected to pick up to 4.6% in the Fiscal Year (FY) 2024/25 from 4% in the current FY, reflecting a recovery in industrial and services activities and the commissioning of the Punatsangchhu II hydroelectric project towards the year end.

The growth has been expected to slow to 4% in the current FY, partly reflecting reductions in public investment and capital expenditure. Despite this, the economy will still benefit from a strong performance in tourism related services.

The real GDP growth rate however is expected to increase from 0.1 percentage points during the last FY to 0.9 percentage points this FY, and again down to 0.3 percentage points in the FY 2024-25.

During this entire period, the tourism industry is going to play a pivotal role in the trajectory along the economic indicator bar chart. With 103,000 tourist arrivals last year, the Department of Tourism (DoT) surpassed even their own projections of 98,000 tourists for the year, and generated revenues amounting to USD 26 Million (M) in the form of sustainable development fees (SDF) alone.

According to the Global Economics Prospects report 2024, in a number of South Asian Region (SAR) economies (Bangladesh, Bhutan, India, Maldives, and Pakistan), parliamentary or national assembly elections are scheduled, planned or has been held in 2024. The heightened uncertainty around these elections could dampen activity in the private sector, including foreign investment.

“If combined with political or social unrest and elevated violence, this could further disrupt and weaken economic growth. In addition, particularly in countries with the weak fiscal positions, an increase in spending prior to these elections could exacerbate macro-fiscal vulnerabilities. However, the implementation of policies to reduce uncertainty and strengthen growth potential after elections could lead to an improvement in prospects,” the report stated.

Growth in SAR is expected to edge marginally lower from an estimated 5.7% last year to 5.6% in 2024—still the fastest pace among all emerging market and developing economy (EMDE) regions— and then firm to 5.9% in 2025.

Growth in India is projected to remain strong, largely driven by robust investment and services. In other economies, the adverse effects of persistently high inflation and monetary and fiscal policy tightening, as well as policy uncertainty, will weigh on growth. Risks to the outlook are tilted to the downside, with the most pressing concerns being higher energy and food prices caused by the ongoing conflict in the Middle East and adverse spillovers from elevated policy rates in advanced economies. Risks of financial and fiscal stress, extreme weather events, slowing activity in China, and election-related uncertainty in some countries pose further downside risks for the region.

In Nepal, growth is projected to pick up to 3.9% in FY 2023/24 and 5% in FY 2024/25. Expansion of industrial and services activities will be supported by monetary policy easing and the lagged effects of the removal of import restrictions.

In Sri Lanka, the economic outlook remains uncertain, amid debt restructuring negotiations with private creditors and the implementation of structural reforms to improve growth potential. Fiscal policies in the region are expected to be a modest drag on growth, with deficits set to narrow marginally in 2024.

In India, government revenues are expected to gain from solid corporate profits, and current expenditures are likely to decrease with the conclusion of pandemic-related measures. Interest payments are projected to be large in countries with elevated debt levels, including India, Pakistan, and Sri Lanka.

Over the long run, growth prospects in the region are expected to remain strong, despite some moderation. Potential growth in the region is expected to be broadly stable, partly supported by demographic dividends. However, the region will see a shift in the distribution of workers toward older cohorts, underscoring a need to raise labor supply.

As gender inequality is widespread in regional labor markets, there is ample opportunity to advance female labor force participation, which could, in turn, enhance the potential for economic growth. Per capita income growth is projected to fall to 4.5% in 2024, from a 2010-19 average of 5.4% a year. Excluding India, regional per capita income growth is expected to be a modest 2.3% a year. Despite the slowdown, the decline in poverty in the region is expected to continue.

By Tashi Namgyal, Thimphu