Real growth outpaced by rapid import growth

Report: The drivers of the country’s economic growth of 6.3 percent in 2014-15 was construction of hydropower dams, tourism, and increased grant-financed capital spending for the 11th Plan, the World Bank’s report, “South Asia economic focus” states.

However the growth in real export earnings was outpaced by rapid import growth. Exports grew at 3.3 percent, supported by tourism expansion, but imports grew by 11.5 percent.

While investment remained robust in hydropower and construction sectors, an easing of credit restrictions has supported private consumption albeit causing growth in imports.

“The revenue effort is expected to weaken slightly, unless new measures to strengthen the tax base are introduced,” the World Bank suggested. Domestic revenues have declined over the last three years, from 22 percent of GDP to an estimate of 19.9 percent in 2014-15. Grants finances about 27 percent of the budget, 70 percent of which come from India.

Overall, gross capital fixed investment, net increase in physical assets grew an estimated 10 percent, making a larger expansion in the hydropower sector.

“Economic growth will only pick up at end of 2018, when new hydropower projects will come on stream,” the report stated. GDP in 2015- 2016 is projected to grow by 6.8 percent.

The report also highlighted that agriculture sector is projected to grow at its “historic” rate of 2 percent.

The risk of Bhutan’s external debt distress continues to be moderate, the rapid build-up of debt over the recent years cautions against any additional non-concessional borrowing,

Maldives and Bhutan remain the odd “debt twins” among the south Asian nations, as per the report with highest debt to GDP ratio.

In Bhutan, public debt is the result of adequately financed capital investments in the hydropower sector although fiscal deficits have been contained over the last years. “Most of Bhutan’s external debt is denominated in Indian rupee, mitigating currency risks,” the report states.

Nevertheless, the impact on Bhutan’s economy of ongoing turbulence in global financial and exchange markets is expected to be modest, coming mainly in the form of imported inflation and weaker tourism.

Tshering Dorji