The Asian Development Bank (ADB) has projected that Bhutan’s inflation will fall from 5.5% in 2023 to 5.1% in 2024.
Amongst others, ADB has said that the moderation in inflation will be driven by the government’s food security drive and low prices for domestic food, offsetting some imported inflation. Apart from this, the Indian factor would also contribute to the decline. These were some of the important points articulated during the launch of the Asian Development Outlook (ADO) April 2023, in Thimphu, recently.
According to the Asian Development Outlook (ADO) April 2023, inflation in India would be 5.0% in 2023 and 4.5% in 2024, which will help contain inflation in Bhutan as imports from India constitute about half of the consumer price index, According to the ADO 2023, inflation is expected to moderate this year and next year and gradually move closer to figures before the pandemic.
The ADB has also underlined that the moderation of inflation in India will help contain inflation in Bhutan as imports from India constitute about half of the consumer price index.
“The rule of thumb is that a 1.0% point change in India induces a 0.5 point change in Bhutan. With improvements to the global supply chain and the geopolitical situation, and with moderation of inflation in India, average inflation in Bhutan is forecast at 5.1% in 2024,” the Bank has said.
At the launch, Milan Thomas of the Economic Research and Regional Cooperation Department, ADB, Manila, said that over one and half of the inflation in Bhutan is directly linked to India’s price level. With India’s inflation expected to fall from 6.8% in 2022 to 5% in 2023 and further to 4.5% in 2024, it would help moderate inflation in South Asia including Bhutan.
Sonam Lhendup of the Bhutan Resident Mission, ADB in Thimphu said that in 2022 inflation actually moderated to 5.6% from 7.3%, which was due to inflation of domestic food. Sonam Lhendup said that the other factor to be included in the moderation of the inflation is moderate inflation in India, which is expected to remain 5% in 2023 and 4.5% in 2024 which will also help to contain inflation in Bhutan.
“With improvement in the global supply chain and the geopolitical situation, and moderation of inflation in India in 2024 with 4.5%, the average inflation in Bhutan in 2024 is projected at 5.1%,” Sonam Lhendup said, adding that it will also help to moderate the inflation rate in the country.
Sonam Lhendup shared that the inflation moderated from 7.3% in 2021 to 5.6% in 2022. “Inflation slowed in 2022 in tandem with food price inflation, which fell from 12.8% in 2021 to 5.0%,” Sonam said, adding that the non-food inflation averaged 9.0% which is mainly driven by transport costs that increased by nearly 13.0% with a large rise in global oil prices following the Russian invasion of Ukraine.
Meanwhile, the ADB’s report stated that inflation should decline this year in all sub-regions expect South Asia, where large currency depreciations in Pakistan and Sri Lanka are causing higher import and domestic prices.
Similarly the ADB stated that with the higher interest rates and still-elevated commodity prices, it is expected to shape the country’s inflation outlook and healthy domestic growth in India will be the main growth supports for inflation this year and next year in the country.
According to ADB, an array of immediate and emerging challenges could still hold back the region’s recover. The policy makers should stay vigilante in the post-pandemic environment of higher inflation, interest rates, and debt. Government must continue supporting multi-latera lism, and lean against the risks of global fracturing.
Similarly, Thomas Milan said that risk factor also includes Russian-Ukraine war, financial sustainability in USA and Europe with rising debt level and high interest rate which posses dangerous to rest of the world in global trade, and risk including climate disaster, amongst others.
Sherab Dorji from Thimphu
