Thukten Zangpo

The Asian Development Bank (ADB) has projected Bhutan’s economic growth at 5.5 percent for this year, a revision that falls short of the finance ministry’s estimate of 6.1 percent. 

This update, released in the ADB’s September report, also forecasts a growth rate of 7 percent for 2024, which will be mainly driven by increased government expenditure, higher electricity output, and a surge in tourist arrivals.

“A 17 percent increase in the government budget for fiscal year 2024-25 will enhance industry growth and boost domestic demand this year and next,” states the ADB report. 

The commissioning of the Punatsangchhu-II hydropower project and the lifting of the credit moratorium in July are expected to boost GDP growth. 

The anticipated rise in tourist arrivals, supported by enhanced promotional efforts and the implementation of a USD 318 million economic stimulus programme, is also expected to further drive growth. 

The ADB has slightly raised its inflation forecasts since April. Headline inflation in the first four months of 2024 averaged 4.7 percent year on year, slightly higher than projected. High food price inflation, averaging 6.1 percent in the period, was the main driver. 

Food prices, however, are expected to decrease as Bhutan’s harvest season begins in coming months, reflecting a similar trend in food prices in India. 

While non-food price inflation was reported averaging at 3.5 percent in the first four months of the year, driven mainly by increased prices for housing and utilities, health services, and communication are expected to rise slightly during the rest of the year.

The ADB cautioned the risks of economic growth and inflation because of the country’s wider fiscal deficit and weakness in the country’s external reserves position. 

Bhutan’s gross international reserves have dropped from covering 14.7 months of imports in December 2019 to about 4.5 months as of May 2024, the ADB stated. During the period, the reserves fell below the constitutionally mandated threshold of USD 670 million due to deteriorating current account conditions, largely from higher food and fuel prices and a significant rise in imports for bitcoin mining equipment.

As Bhutan depends heavily on imports, foreign currency reserves could experience further depletion,  triggering restrictive countermeasures that would dampen growth. 

As of March this year, the country foreign currency reserves was reported at USD 699.6 million (USD 475.75 million and INR 18.66 billion) which declined to USD 596.85 million (USD 423.39 million and INR 14.45 billion) as of June this year.

The ADB also warned that the energy output could be hit by delay in commissioning of Punatshangchu-II project, geological surprises that delay other hydropower projects, and low hydrological flows.  Other risks include volatile commodity prices, geopolitical tensions, and a global slowdown, which could impact service and exports.