GDP to grow at 4.5 percent in 2022

The Country Director of ADB Bhutan, Shamit Chakravarti, said that the pandemic is uncertain and there are always downside risks.

ADB country director says Bhutan should create conducive environments for private sector development



According to the Asian Development Outlook (ADO), 2022 released on 6 April, the Asian Development Bank (ADB) states that Bhutan has to create a strong footing for economic recovery.

The report states that Bhutanese economy is on the good recovery path; the progressive relaxation of containment measures, including opening the country to tourism, and continued robust policy measures will enable the economy to grow faster in 2022 and 2023.

However, the Country Director of ADB Bhutan, Shamit Chakravarti, said that the pandemic is uncertain and there are always downside risks.

He said that Bhutan should create conducive environments for private sector development, while at the same time reduce dependence on the hydropower sector and state-owned enterprises (SOEs).

The country director said the GDP is projected to grow fast at 4.5 percent in 2022 and 7.5 percent by 2023, provided there are no new outbreaks of coronavirus variants and the Russian invasion in Ukraine ends.

However, as the pandemic situation is uncertain, Shamit Chakravati said Bhutan need to develop resilience against climate change and disaster as the country is prone to disasters. Diversification of economy and supporting the private sector should also be key reforms.

The hydropower sector, which make-up 57 percent of the government revenue on average from 2011 to 2020, contributed just about 2 percent to the total employment.

“Bhutan’s focus on hydropower as the main source of growth, exports, and foreign exchange earnings has come at the cost of a vibrant and competitive private sector,” Shamit said.

The report also states that all sectors are estimated to have grown in 2021 on strong domestic demand supported by the government’s counter-cyclical programs and monetary relief measures. Further, industry output is estimated to have increased by 4.7 percent, accounting for nearly half of GDP growth.

The construction and export-oriented electricity subsectors accounted for two-thirds of industry growth, and manufacturing, mining, and quarrying for the rest.

However, agriculture growth slowed to an estimated 3.6 percent from 4.6 percent in 2020 because of unfavorable monsoon while services continued to be affected by the closure of international tourism.

“The services sector, which accounts for 40 percent of GDP growth, was buoyed by revival in retail trade and other domestic businesses,” the report states.

Total consumption expenditure, comprising 82 percent of GDP, is estimated to have grown by 5.4 percent in 2021.

Meanwhile, gross fixed investment is estimated to have contracted by 6.9 percent owing to labor shortages, as many expatriate workers left the country at the onset of the COVID-19 pandemic, and a lack of material supplies because of border closures and mobility restrictions within Bhutan.

“The contraction in economic activity in 2020 resulted in the loss of many jobs. Some 50,000 people were laid off from tourism and allied sectors alone. Bhutan’s unemployment rate is estimated at 4.7 percent in 2021 after having hit an all-time high of 5.0 percent in 2020,” it states.

Shamit Chakravati, said the government’s stimulus packages to revive the economy, the Build Bhutan Project, and job creation schemes helped reduce the unemployment rate in 2021 adding that the government has an ambitious policy.

He also pointed out that the current reserves would be less if the government does not come up with broad based policy that match supply and demand with more job creation.