SONAM PENJOR | Thimphu
With the nation achieving widespread vaccination accounting for about 90 percent of its adult population having received a booster dose by early March 2022, and supported by strong policy measures and the progressive opening of tourism by September this year, the economy is anticipated to sustain a growth of 4.9 percent.
This is according to the Ministry of Finance’s Fourth Quarter Update of the Macroeconomic Situation Report for the Financial Year (FY) 2021–22.
In addition, it notes that growth is predicted for 2022 despite the two extended lockdowns that took place from mid-January to March to stop the virus’s spread.
According to the paper, the growth trajectory assumes that, if government expenditure keeps boosting aggregate demand and projects are made on schedule, there won’t be any new types or mobility constraints.
According to the ministry, economic activity increased in 2021, backed by an expansionary fiscal policy, monetary assistance, and a gradual easing of containment measures.
In addition, the economy expanded by 4.1 percent in 2021, up 14.1 percentage points from the -10.0 percent decline it experienced in 2020.
Due to healthy domestic demand and in combination with the global economic recovery, all industries showed a strong growth.
After reaching an all-time low of -12.9 percent in 2020, the study claims that industrial output increased by 1.9 percent.
Mining and quarrying as well as the building sector were the subsectors boosting industrial growth. Cement, food, chemical, and metal industries’ manufacturing output also increased, helped by government countercyclical initiatives and monetary relief measures.
According to the ministry, the service sector saw a growth of 6.3 percent in 2021 because of the gradual relaxation of mobility restrictions and the restart of economic activity.
“Despite the tourism industry being at a standstill, the expansion of the service sector, contributing about 44.0 percent to the gross domestic product (GDP) in 2021, was guided by the rebound in retail trade and other domestic enterprises,” the ministry states.
According to the report, decreased production in the cattle and forestry sectors are to blame for the slowdown in agriculture growth, which fell to 2.1 percent in 2021 from 4.6 percent in 2020.
However, it notes that a negative risk to growth is predicted due to increased global and regional uncertainty as well as new problems in the local economy.
Additionally, it stated that the effects of escalating geopolitical unrest as well as rising food and energy costs will have a negative influence on the economy and jeopardize development prospects.
The ministry also stated that, in the medium term, the recovery in services and hydropower is anticipated to drive growth, with the capacity of electricity generation anticipated to double assuming the commissioning of major hydro-power projects occurs as planned.
The nation’s fiscal imbalance remained high because of lower resource mobilization relative to higher spending needs brought on by the Covid-19 pandemic.
In the fiscal year 2021–20.22, overall spending increased by 16.4 percent without accounting for NRF, but total revenue mobilized decreased by 12.7 percent, resulting in a fiscal deficit of 8.9 percent of GDP.
According to the report, capital expenditures which indicate a focused scale-up of public infrastructure projects to assist economic revival were the main driver of the increase in spending.
While recurring spending was kept within domestic revenue, it is predicted that capital spending surged by 25.2 percent. On the resource side, domestic revenue grew by 8.9 percent because of a 25.1 percent increase in tax revenue, mostly because of better CIT, BIT, PIT, sales tax, and green tax collection.
Grants, however, remained on the lower end, only receiving 61.7 percent of the planned amount.
The budget deficit is projected to be 9.0 percent of GDP for the current fiscal year 2022–2023 as government expenditure continues to hasten the pace of the recovery. The capital budget of Nu 38.5 billion (B), one of the highest and accounting for 51.5 percent of the overall outlay, is expected to boost total spending by 8.0 percent.
With the addition of royalties from the travel and tourism sector and a general improvement in the collection of both direct and indirect taxes, the expected value of domestic revenue has been revised from Nu 36.4B to Nu 41.3B.
In terms of grant mobilization, the ministry states that the current FY is expected to receive the Nu 14.8B remaining from the 12th FYP.