The govt. though can’t claim credit for this projection; it’s mainly due to Dagachu
WB Report: The World Bank (WB) has projected Bhutan’s economic growth at 7.9 percent for the current fiscal year – higher than the government’s 6.8 percent target, and is further estimated to increase for the next few years.
The estimate comes at a time when the government has announced a number of economic reform programmes, such as the relaxation of economic development policy. The latest WB projection is higher than that of last year when the country’s gross domestic product (GDP) grew 5.5 percent.
Titled “Global Economic Prospects: Having Fiscal Space and Using It”, the report, which was released earlier this month, however does not attribute the growth to the government’s reform programmes. It says the growth will be propelled by the completion of Dagachu hydropower project.
Further, from the lowest growth rate of just two percent in 2013, Bhutan’s GDP is projected to grow from 8.4 percent next year to 8.6 percent in 2017.
The report states that the region’s smallest economies, including Bhutan, will be lifted by strengthening growth in India, which is the country’s biggest development partner.
Bhutan also has a few things to cheer about on the economic front as compared to its neighbours. The country has six percent of its population paying income tax – the highest in the SAARC region. Only about one percent of people in Bangladesh, Nepal and Pakistan pay tax.
However, remittance inflow into the economy is the lowest among the SAARC countries, contributing only two percent to its GDP. In the region, Nepal is the biggest receiver of remittances, with about 29 percent of its GDP comprising remittances, followed by Bangladesh with 11 percent.
The share of tax in GDP increased from five percent in 2004 to about 9 percent in 2012, the highest in the region. The contribution of direct tax in the GDP is lowest in the Maldives, with only 1 percent.
On the other hand, Bhutan’s suffers from the biggest current account deficit by a large margin, in comparison with any of its neighbours in SAARC. The country’s current account deficit increased from 13.9 percent to 25 percent of its GDP in 2013. It decreased to 21.9 percent last year, but is projected to increase to 27.9 percent in 2017.
A current account deficit arises when a country imports more goods, services and capital than its exports.
Bhutan’s public debt ratios exceed 90 percent of GDP, which means 90 percent of the country’s economy comprises borrowings, both internal and external. “But the ratio should decline once the hydropower projects start to produce and Bhutan’s electricity exports to India increase,” the WB states.
“Deficits in India should gradually decline, as revenues improve in line with activity, and as the government rationalises subsidies and reduces its stakes in major public corporations.”
Bhutan ranks low on some of the common yardsticks of efficient tax administration.
The WB report states that factors that impinge on low revenue mobilisation include low literacy rates, large rural populations, large informal economies, and poor governance. Bhutan has increased the size of its financial sector in the past decade and has managed to boost tax ratios.
“In Bhutan, where revenues depend to a large extent on hydropower, revenue sources must be diversified for stable and increased revenue generation,” the WB report states.
Bhutan will be one of the smallest economies in the world that will experience larger growth in 2017, but India’s 7.0 percent expansion will be the fastest among the world’s 50 largest economies.
Meanwhile, the WB estimates that growth in South Asia rose to an estimated 5.5 percent in 2014 from a 10-year low of 4.9 percent in 2013.
Regional growth is projected to rise to 6.8 percent by 2017, as reforms ease supply constraints in India, political tensions subside in Pakistan, remittances remain robust in Bangladesh and Nepal, and demand for the region’s exports firms.
“Past adjustments have reduced vulnerability to financial market volatility. Risks are mainly domestic and of a political nature.”