Thukten Zangpo

The Asian Development Bank (ADB) has projected that Bhutan’s economy would grow to 4.4 percent this year and 7 percent next year, in its Asian Development Outlook released yesterday,

This growth, the Bank said, would be mainly driven by the service and energy sector growth.

However, the projection is still lower than the finance ministry’s recent projection of 5.68 percent growth this year.

The economics officer of the Bhutan Resident Mission, ADB, Sonam Lhendup, said that the growth of the services sector would serve as a foundation for this year’s economic growth, along with anticipated increased hydropower generation in 2025.

The Bank projected that the services sector is expected to grow by 6.5 percent, driven by a surge in tourist arrivals reaching 60 percent of the 2019 level. Industry is expected to rebound to 2.5 percent, excluding the construction sector. The recently commissioned Nikachhu hydropower plant, operational since early this year, is also poised to contribute to the overall economic growth.

However, the Bank anticipates that the loan moratorium on construction and the slow start of activities under the 13th Plan could impede the construction sector, leading to a projected decline of 2.2 percent this year. The agriculture growth, according to the Bank, could slow down to 1.4 percent.

Sonam Lhendup said that the growth forecast of seven percent in 2025 would be primarily fuelled by the service and hydropower sectors.

The Bank foresees a 5.7 percent growth from the service sector, supported by steady tourist arrivals.

He also said that the industry output was forecast at 15.6 percent in 2025 because of growth in electricity and construction of the 600-megawatt Kholongchhhu hydropower plant in 2025.

The commissioning of the Punatsangchhu-II in the same year, he added, is expected to contribute an additional 5 percentage points to the gross domestic product (GDP) in 2024.

According to the Bank, India’s robust growth is also expected to boost Bhutan’s economy through increased exports of goods and services, given the strong ties between the two nations.

The Bank projected India’s economy to grow at 7 percent in fiscal year 2024 and 7.2 percent in fiscal year 2025.

For 2023, the Bank estimated a lower economic growth rate of 4 percent, lower than the initial forecast of 4.7 percent.

Sonam Lhendup said that this estimate was reduced by 0.7 percentage points due to the poor performance in the construction and energy sectors.

However, the service sector experienced robust growth, estimated at 9.4 percent, primarily due to a rebound in tourism. Meanwhile, agriculture saw a slower growth of 1.3 percent, influenced by erratic rainfall patterns.

The Bank projected inflation to reach 4.5 percent in 2024 and then ease to 4.2 percent in 2025, compared to 4.2 percent the previous year.

Sonam Lhendup said that inflation climbed due to the increase in civil servants’ salaries in 2023 and that it was anticipated to further rise with the expected hike in salaries for non-governmental organisations’ employees and the ongoing global supply chain crisis this year.

According to the Bank, the fiscal balance is projected to narrow to 8.3 percent of GDP in fiscal year 2024 due to a decrease in government revenue from grants and transfers. It is expected to improve to 2.4 percent of GDP in 2025, driven by an enhanced flow of grants and transfers, as well as hydro-earnings. The fiscal balance had narrowed to 0.3 percentage points of GDP in fiscal year 2023.

The Bank forecasts that the current account deficit (CAD), which narrowed to 25.2 percent due to improvements in net imports in 2023, is expected to worsen to over 28 percent of GDP in 2024. This is attributed to a growing trade deficit with India as Bhutan begins implementing the 13th Plan. However, the CAD is anticipated to improve with a surge in hydro-exports in 2025.