IMF forecasts Bhutan’s GDP growth of 4.7% in 2023

According to the International Monetary Fund (IMF), Bhutan’s Gross Domestic Product (GDP) growth rate in 2023 would be 4.7%, which is higher by 0.4% than last year. The GDP growth rate in 2022 was 4.3%.

This was according to the IMF’s biannual “World Economic Outlook” released on April 11 this year.

The forecast of the IMF is slightly higher than the latest Asian Development Bank’s (ADB) projection of 4.6% in 2023 and World Bank’s (WB) projection of 4.1 percent and 3.7% in the fiscal years 2022-23 and 2023-24 respectively.

Clarifying on differences during the spring meeting to Business Bhutan, the mission chief of IMF team said that projections of IMF are produced independently from those of other international organizations and therefore is not uncommon to have slight differences.

Asia and the Pacific remains a dynamic region despite the somber backdrop of what looks to be shaping up as a challenging year for the world economy. 

Asia’s domestic demand has so far remained strong despite monetary tightening, while external appetite for technology products and other exports is weakening. The IMF projects the region will contribute more than 70 % of global growth this year as its expansion accelerates to 4.6 % from 3.8 % last year. 

According to the IMF, China’s reopening will provide fresh momentum. Normally the strongest effect would be from demand for investment goods in China, but this time the biggest effect is from demand for consumption. Other emerging economies in the region are on track to enjoy solid growth, though in some cases at slightly lower rates than seen last year.

In the earlier World Economic Outlook update, it is stated that India and five major Southeast Asian economies will grow more slowly this year as rising interest rates sap momentum from the global economy, with the six countries picking up speed again in 2024. 

The latest report stated that India’s growth was slightly lowered to 5.9 % from 6.1 % from the earlier projection. Yet, the Indian economy was one of the bright spots in the global economy and was previously underestimated the country’s performance according to the IMF.

Meanwhile, the IMF said that the growth in Bhutan is expected to slow down to 3.4 percent in 2024. The slowdown is driven by the expected decline in public investment associated with the cycle of the 13th Five-Year Plan according to the mission chief.

The dynamic growth outlook doesn’t mean policymakers can be complacent. Some risks—such as public debt remain. Intensification of the recent global financial tremors could spark others.

Beyond these risks, persistent inflation remains a challenge. Global commodity prices have moderated after surging last year and supply chain pressures have eased, but inflation remains above central banks’ targets. Core inflation, which excludes food and energy, has also proven sticky, according to the IMF.

The IMF also states that the effect of currency depreciation against the US dollar last year is still passing through to prices. The impact could be greater than usual, because of the already-high inflation, especially for emerging economies. These factors suggest that the battle to contain inflation isn’t over. With real interest rates still low—and negative in some countries— central banks may need to keep interest rates higher for longer.

The IMF recommends policymakers should keep a close eye for stresses and develop contingency plans. Unless strains in financial markets increase and raise broad-based stability concerns, central banks should separate monetary policy objectives from financial stability goals. To do so, policy makers should use available tools—such as lending and discount facilities—to ease any liquidity constraints in the banking sector, allowing them to continue to tighten policy to address inflationary pressures.

Fiscal consolidation may need to be more aggressive to ensure sustainability over the medium term—but policymakers must strike a balance between supporting growth, protecting the vulnerable, and addressing debt concerns.

The IMF has also said that the region must prioritize policy initiatives that foster innovation-driven economic development. The green transition presents a wide range of innovation opportunities that can become the region’s new growth drivers if leveraged effectively. By investing in research and development, promoting entrepreneurship, strengthening education and digitalization, Asian countries can foster sustainable, long-term growth.

Sangar Rabten from Thimphu