Economic growth projected to rebound at 5.5% in 2022: RMA

The economic activities are likely to pick up on account of mass vaccination

Should the commissioning of the Punatsangchhu-II and Nikachhu hydroelectric projects in 2023 ensue as scheduled, the country’s economic growth between this and the next fiscal year is projected to grow at an average of 5.5%. This is according to the Royal Monetary Authority (RMA).

From a record low of negative 10.1% in 2020 from 5.8% in 2019, the domestic economy was projected to revive to 3.3% in 2021.

In its annual report, the RMA states that the hydropower sector continued to exhibit resilience and remained the primary contributor to economic growth. The sector is expected to grow by 1.6% in 2021.

Against this backdrop, with a gradual recovery in the industrial and services sectors followed by the agriculture sector, the growth trajectory is projected to rebound to the pre-covid level at 5.5% in 2022.

However, the major economic setbacks were felt in the mining, construction, transport, manufacturing, and hospitality sectors. The GDP growth declined significantly to negative 10.1% in 2020. At the same time, the unemployment rate rose to 5.0% in 2020 from 2.7% in 2019.

The report states that the upward revision was based on improvement in economic activities in the agriculture sector by 6.8%, due to an increase in crops and livestock production. Various measures to boost agricultural productivity have been implemented during the pandemic.

In addition, improvement in the supply chain within the country has been an ongoing effort of the government.

The total consumption, which constitutes 74.2% of total output, is expected to increase by 20.7% in 2021 due to an increase in both private and public consumption.

Further, public investment is estimated to increase by 31.6% as part of counter-cyclical fiscal policy measures against the pandemic in the medium term. The private investment is expected to grow by 2.8%.

According to the medium-term macroeconomic outlook, though the pandemic has caused disruptions in the labor market, it has triggered the government and other agencies to make innovative and impactful interventions from both the demand and supply front in the labor market.

As such, the overall unemployment is anticipated to decrease from 5.0% in 2020 to 4.7% in 2021, particularly with the initiation of a skills development plan and foreign worker management strategy in the medium term.

The report states that with these measures, youth unemployment which was registered at 22.6% in 2020 is also expected to decline to 21.2% in 2021.

Although with rising global commodity prices and continued supply chain disruptions, the inflation is expected to remain elevated, the report states, adding with a gradual easing of containment measures and calibrated approach of central banks in tightening stance of monetary policy in the region, inflation is expected to moderate.

According to the report, the fiscal deficit is expected to remain elevated at 8.6% of the GDP in the FY 2021/22 with boosting private sector participation, generating employment, and improving aggregate demand needs to be accelerated through substantial fiscal stimulus.

It states that 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 7.0% from a deficit of 8.0% in the FY 2020/21.

Further, accelerated government investment activities, economic activities are anticipated to pick up in various sectors, contributing to the growth in tax revenue. The economic activities are likely to pick up including tourism receipts (SDF and Visa Fees) on account of mass vaccination and reopening of the economy in a calibrated manner.

The report also states that the tax revenue during the FY 2021/22 is expected to grow by 25.0% from -19.0% in the FY 2020/21. The sales tax collection from hotels, airport tax, corporate income tax, and business income tax from tourism and allied businesses are also expected to gradually improve.

Meanwhile, the capital expenditure is expected to grow by 39.0% in the FY 2021/22 from Nu 27,576mn in the previous year.

The total budget outlay is expected to increase by 4.4% of Nu 73,919mn in the FY 2021/22 from the previous year, with the highest allocation of capital expenditure of 32.7% of Nu 38,320mn of the plan capital outlay during the 12th FYP.

Despite the projected improvement in fiscal deficit during the FY 2021/22, the public debt is projected to grow by 116.8% of the GDP from 125.6% of the GDP in the FY 2020/21 on account of increase in borrowings for the hydropower construction, particularly the Kholongchu Hydropower Project, the report states. The report also states that the persistent increase in the public debt stock due to delay in completion of ongoing hydropower projects combined with a sharp fall in domestic revenue base will continue to bring uncertainty over the medium-term.

Kinley Yonten from Thimphu