Of rising GDP and economic recovery

The Prime Minister’s State of The Nation Report highlights a broad-based economic upturn post pandemic era

Bhutan’s overall economy leapfrogged from -10.2 percent in 2020 to 5.2 percent in 2022, marking a significant stride of 14.4 percent in those two years. The economy in 2022 experienced growth with a 0.8 percentage point increase compared to 2021, as economic activities picked up on account of strong domestic demand and in tandem with global economic recovery.

The State of The Nation (SoTN) report 2023, which was presented by the Prime Minister (PM) to the parliament on Friday stated that the country’s Gross Domestic Product (GDP) per capita also rose to USD 3833. Likewise, the Gross National Income (GNI) per capita experienced a growth of 5.7 percent in 2022 due to a rise in the inflow of primary income compared to the previous year.

In 2022, the service sector demonstrated significant growth, expanding by 6.6 percent. It remained the largest contributor to overall economic growth, representing 53.5 percent of the GDP. The revival of hotel and restaurant activities, as well as the resumption of regular business operations in wholesale and retail trade was key drivers behind this sector’s growth. 

Driven by construction and manufacturing industries, the industry sector exhibited a growth of 5.6 percent in 2022, compared to 3.9 percent in the previous year. The sector’s contribution to GDP growth is estimated at 1.8 percentage points. On the contrary, agriculture growth contracted by 1.2 percent attributed to an unfavorable harvest outcome and reduced production in livestock.

On the demand side of the economy, final consumption expenditure exhibited a growth of 3.1 percent contributed by household final consumption expenditure which was 5.5 percent.

While export of goods and services declined by 8.1 percent, the import of goods and services increased significantly by 17.1 percent in 2022. The government expenditure for the fiscal year 2021-22 stood at Nu 69.39 billion, a 1.4 percent decline from the previous fiscal year, accounting for 37 percent of GDP while the current expenditure stood at Nu 34.4 billion.

The PM informed the parliament that ‘escalating costs and disruptions in supply chains led to upsurge in inflation during 2022, which was widespread, substantial, and continues to erode household purchasing power.’ While the overall annual average inflation fell from 7.4 percent in 2021 to 5.6 percent in 2022, it remained above pre-pandemic levels of about 2.7 percent. The increase in food prices remained subdued with easing of supply chain disruptions.

The month-on-month Consumer Price Index (CPI) also increased by about 1.3 percent from the month of June with an increase in both food and non-food prices.

Under the fiscal sector, total resources mobilised in the fiscal year 2022-23 was Nu 59.89 billion, an increase of 10 percent compared to the previous fiscal year. Of the total resources, domestic revenue contributed 73.1 percent and the remaining of 26.9 percent was from grants and other receipts.

The domestic revenue realised for the fiscal year 2022-23 amounted to Nu 43.81 billion, exhibiting a growth of 12.2 percent due to increase in tax revenue by 13.3 percent, mainly from improved collection in corporate, business, and personal income and sales tax. Total external grants amounted to Nu 14.93 billion, an increase of 7.8 percent compared to the previous fiscal year.

For the current fiscal year, total resources are maintained as per budget at Nu 53.02 billion, which is a decrease compared to the previous fiscal year. Of the total resources, domestic revenue is estimated at Nu 46.23 billion while total external grants are maintained at Nu 6.78 billion.

On the expenditure side, total expenditure increased by 0.3 percent in the fiscal year 2022-23 amounting to Nu 69.58 billion. Recurrent expenditure increased by 2.9 percent amounting to Nu 35.43 billion, while capital expenditure decreased by 2.8 percent from Nu 34,712 million in the fiscal year 2021- 22 to Nu 33,750 million in the fiscal year 2022-23.

The total outlay for the current fiscal year is maintained at Nu 74.86 billion, an increase compared to the fiscal year 2022-23. Of the total expenditure, Nu 45.55 billion is apportioned as current budget and the rest as capital expenditure.

Fiscal deficit is estimated to improve as revenue mobilisation improved by 10 percent. For the current fiscal year, fiscal deficit is estimated to widen to 9.9 percent of GDP on account of reduced grants estimates. The fiscal deficit of Nu 21,837 million is expected to be financed through domestic and external concessional borrowings.

The total public debt as of June this year stood at Nu 276,976 million, accounting for 136.8 percent of GDP. The debt stock comprises external debt of Nu 244,186 million, accounting for 120.6 percent of GDP and the domestic debt of Nu 32,790 million.

The hydropower debt as of June this year stood at Nu 168,648 million, accounting for 69.1 percent of total external debt and 83.3 percent of GDP. Non-hydro debt stood at Nu 75,538 million, accounting for 30.9 percent of total external debt and 37.3 percent of GDP.

The current account balance (CAB) is estimated to widen from 33.9 percent of GDP in the fiscal year 2021-22 to 34.5 percent of GDP in the fiscal year 2022-23 as a result of widening trade deficit.

The overall import as of January-June this year amounted to Nu 57.2 billion, an increase of 3.1 percent compared to the same period in 2022, whereas overall exports in the same period amounted to Nu 18.7 billion.

The report stated that the gross international reserves also depleted in the same period. As of June this year, total reserves stood at INR 6,794.5 million and convertible currency reserves at USD 500 million.

The monetary and credit situation remained favourable in the fiscal year 2022-23. Total deposits which constitute about 95 percent of the money supply grew by 10.4 percent. The contribution of net foreign assets, however, fell by 8.7 percent with decline in reserves as a result of deterioration in balance of payment performance.

Domestic credit growth determined by developments in the real sector and government expenditure increased by 10.2 percent in the fiscal year 2022-23. The total domestic credit outstanding was recorded at Nu 184.7 billion.

Banking liquidity at the end of fiscal year 2022-23 stood at Nu 10,139 million compared to Nu 24,445 million in the previous fiscal year.

Shedding some light on the expenses for the developmental activities being undertaken for the current fiscal year, the education and co-related sectors was allocated a total of Nu 946.57 million while a little more than Nu 2000 million is allocated for health and related sectors.

Budget for access to drinking water and RNR sector accounted for Nu 1500 million while trade and connectivity together summed up to Nu 3000 million approximately. Expenses for black topping of roads, energy and other miscellaneous activities completed the cohort.

Overall, the economy witnessed a broad-based recovery post pandemic era as activities regained stability and normalcy which was propelled by monetary relief measures and accelerated public expenditure. Sectors such as hotels and restaurants, construction, and wholesale and retail trade played a significant role in driving the economic upturn.

Tashi Namgyal Tashi Namgyal