FM says Experts Advise Against Continuing Loan Deferment

Finance Ministry eyes robust economic expansion

Forecasts indicating a high of almost 9% growth next year

In an encouraging forecast, Bhutan’s Finance Ministry has projected a 5.68% growth for the nation’s economy this year, according to its latest macroeconomic situation report for the second quarter of the fiscal year 2023-24. Looking further ahead, the ministry anticipates even more robust expansion, with forecasts indicating as high as 8.97% growth in 2025.

A key driving force behind this optimistic outlook is the anticipated commissioning of mega hydropower projects coupled with heightened government spending outlined in the 13th Five Year Plan (FYP). These initiatives are expected to propel Bhutan’s economy forward, fostering a strong growth trajectory.

According to the Finance Ministry, one significant indicator of this growth is the expected increase in earnings from electricity sales. This year alone, earnings are estimated to reach Nu 29.69 billion (B), driven by additional energy generation from the commissioning of the Nikachhu hydroelectric project. Looking ahead to 2025, the commissioning of the Punatsangchhu-II hydroelectric project is forecasted to further boost hydro energy sales earnings by an impressive 63%.

Hydropower remains a cornerstone of Bhutan’s economy, serving as the primary source of foreign currency and contributing substantially to both export revenues and domestic revenue generation. Despite a slight dip in gross earnings from hydropower energy sales last year, down by 10%, the sector’s significance remains paramount.

However, amidst these positive projections, the Finance Ministry acknowledges looming risks to the growth outlook. Factors such as commodity price fluctuations, financial market volatility, tight labor market conditions, and imbalances in the external sector could pose challenges to sustained economic expansion.

In terms of budget allocation, the 13th FYP’s budget marks a significant increase, standing at 30% higher than the12th FYP’s budget. Out of the estimated total budget of Nu 512.4B, Nu 250B is allocated for capital, while Nu 262.48B is designated for current expenditure, reflecting the government’s commitment to driving economic development.

Sectoral analysis reveals both areas of growth and challenges. While agriculture is expected to contribute positively to overall growth, driven by crop and livestock production, the forestry and logging sector is anticipated to experience a slight decline. Similarly, the industry sector faces challenges, particularly in electricity and construction subsectors.

Despite these challenges, the service sector is poised for robust growth, with various subsectors such as wholesale and retail trade, transport and storage, hotel and restaurants, and public administration expected to drive expansion.

“In a nutshell, Bhutan’s economic outlook appears promising, buoyed by strategic initiatives and prudent management. However, proactive measures will be necessary to navigate potential challenges and ensure sustained and inclusive growth for the nation,” an official from the Finance Ministry said.

The growth from agriculture is estimated at 1.83% in the same year, contributing to the overall 0.24% of the overall growth.

The agricultural growth is expected to be driven by crop and livestock production, with respective growth rates of 1.81% and 2.76% respectively.

The forestry and logging sector, however, is expected to experience a slight decline by 0.16%, according to the ministry. The industry sector’s growth is expected to decline by 8.42%. The sector contributes to 2.71% of the overall growth. The negative growth is attributed to a decrease in the electricity and construction sectors by 8.32% and 18.07%, respectively.

This downturn, experts say, is due to reduced government and hydropower construction spending and lower hydropower generation.

The mining and quarrying, and manufacturing sectors are expected to exhibit a growth of 7.87% and 4.54% respectively.

The service sector is expected to grow at 10.52%. Likewise, the wholesale and retail trade is estimated to grow by 9.07%, transport and storage by 16.88%, hotel and restaurants by 14.29% and public administration by 15.08%.

By Tashi Namgyal, Thimphu