Water Male Tiger Year-Outlook: The Lunar new year started with a positive economic outlook with the prime minister announcing a new Covid management strategy that will involve lifting the lockdown and relaxation of the quarantine protocol for travellers.
The economy is expected to pick up after the country vaccinates all children from the age of five to 11 years and switches to a new Covid management strategy in April.
Finance Minister Namgay Tshering told Kuensel that the Gross Domestic Product (GDP) was predicted to rebound to around 4 percent with the announcement of the unlocking process. The GDP for 2021, he said, was expected to be around 3.5 percent although data were being compiled.
However, officials are cautious that the unlocking process could be affected if a more dangerous variant than Omicron emerges.
“With the announcement of the new Covid management strategy in the new year, small and micro industries can expect significant growth. It will also boost consumption, which is one of the drivers of GDP growth,” the finance minister said.
Lyonpo Namgay Tshering said that the country is looking forward to a positive growth after having recorded an all-time low GDP growth of -10.08 percent in 2020.
The government is hoping that the impact of the ongoing lockdown on the economic front would be less severe than that of the past lockdowns.
The finance minister said that the ongoing lockdown was improved to minimise the impact on the economy. He added that the second phase of unlocking would also offset the economic loss caused by the lockdown.
RMA projects 5.5 GDP growth
The central bank’s economic growth projection is more optimistic than that of the government.
The recently released annual Royal Monetary Authority (RMA) report 2021 projects Bhutan’s GDP growth at 5.5 percent in 2022 as the industrial and services sectors are expected to recover gradually.
The World Bank also projects similar growth. In its report titled “Global Economic Prospects”, the bank projects the country’s GDP growth at 5.1 percent in the financial year 2021-22.
The report states that World Bank’s projections were based on expectations that investment and external demand (exports) will rebound.
However, officials said that the Ukraine-Russia crisis could affect exports, as the demand in the international market is likely to be affected if the crisis prolongs.
Economic affairs minister Loknath Sharma said that the Ukraine crisis had come at a time when economies around the world were picking up.
Lyonpo said the crisis could disrupt the supply chain and affect the demand in the international market.
The conflict in Ukraine could knock USD1 trillion off the value of the world economy, various international media reports have said citing the UK’s National Institute for Economic and Social Research. This, the economic affairs minister said, would have some impact on the Bhutanese economy too.
Inflation, Lyonpo Loknath Sharma said, was one of the main concerns.
According to the State of the National Report, by the end of 2021, the inflation rate is projected to reach 6.87 percent. But Lyonpo said inflation could touch a double-digit figure if the situation in the local and international economies prolongs.
He said the main drivers of inflation would be the increase in fuel prices and cost of transportation of goods as the supply chain is disrupted. He said that an increase in fuel prices in India and Bhutan was expected although India imports most of its fuel from the Middle East.
However, the economic affairs minister added that economic activities would pick up significantly as the country relaxes Covid control measures in the coming months.
Most of the industries, he said, were currently working at a 50 percent capacity due to labour constraints and Covid protocols. “This situation will improve,” he said.
He said that work at the Punatsangchhu II project was taking place at a 45 percent capacity in terms of the number of workers and that the project would be able to bring in more workers in the new year.
The government acknowledges the challenges in reviving the economy as the country ushers in the year of the Tiger.
The finance minister said that the supply chain both in the local and international market had been affected and that it would take some time to return to normalcy.
A disruption in the supply chain would entail additional costs, which will be borne by consumers.
However, Lyonpo Namgay Tshering said that about 80 percent of Bhutan’s trade was with India and that the impact of the Ukraine crisis would not be severe on the Indian and Bhutanese economies.
The finance minister said that the country would record a positive growth in 2022.
Prime Minister Dr Lotay Tshering on March 2 announced that the country will not lockdown even if there are positive cases in the community starting mid of April as the country switches to a different strategy of managing the pandemic.
Future lockdowns will be enforced under two circumstances: when the country reaches the threshold of bed occupancy at the Covid-19 isolation ward or if there were the emergence of lethal variants. “We hope lockdowns would not be required at all.”