… trend notable after every five years

Tshering Dorji

Since the onset of democracy, one peculiar trend in the economic growth rate has been the plunging GDP growth rate towards the end of the elected government’s tenure or the Five Year Plan.

This has transpired a blame game of sort during the former government’s tenure, with opposition blaming the government for inability to fetch a decent economic growth and government pushing the ball back to the opposition stating that it was not their doing.

This time again, the growth plunged despite forecast made by the IMF and World Bank, which are higher.

For instance in 2016, the IMF projected Bhutan to be one of the fastest-growing economies in 2017 and 2018.  However, the latest figures from World Economic Outlook revealed a growth of 4.6 percent in 2018 and 6.3 percent in 2017.

In contradiction to these projections, the National Statistical Bureau (NSB), in its National Accounts statistics revealed the actual growth rate in 2018 was 3.03 percent, lowest since 2013.

In the current government’s case, it took office from November 2018 and the capital budget for six months could not be passed.

Local economists said that low growth rate at the end of the five-year period is normal because all funds of the five-year period would get exhausted and activities completed, save for few spill overs.

This is primarily because GDP growth in Bhutan is highly dependent on government investment, particularly in the hydropower sector and construction sector, which is closely associated with the former.

National Accounts statistics revealed that government construction accounted for 30.30 percent, while the private and public corporations’ construction together accounted for 69.70 percent of gross value added (GVA) of the construction sector in 2018. GVA is the value for the amount of goods and services that have been produced in a country, minus the cost of all inputs like taxes and subsidies.

The NSB, in the accounts statistics also stated that electricity and water sector’s growth dropped further in 2018 to negative (-14.89) from negative (-3.81) percent in 2017.

The growth in the sector is largely dependent on the performance of the electricity sector, since it constitutes almost 99 percent of the sector. Electricity generation observed a drop in growth by negative (-10.00) percent, further the distribution witnessed one of the highest fall in growth by negative (-30.14) percent as compared to 2017. The drop was mainly due to completion of construction activities.

This proves that Bhutan’s economy continues to be dominated by hydropower. For instance, World Bank has revised its estimates downward to 5 percent in FY 2019. This is due to maintenance and on-boarding delays on two major power plants (Tala and Mangdechhu).

Construction sector is dependent on government projects and banks, which are in turn linked to external funding and loan. Contractors have poured their grievances to the government over the slowdown, which has put some businesses to standstill.

The National Accounts Statistics attribute the lower growth in 2018 to deceleration in electricity, construction, general government spending and forestry and logging with negative growth of (-14.89) percent, (-7.99) percent, (-1.53) percent and (-1.01) percent respectively.

On the demand side, growth was underpinned by exports and consumption. Services remain the main driver of growth on the supply side, where wholesale and retail trade has emerged as the key contributing sub-sector.

However, trade deficit in 2018 increased by 13.03 percent from the previous years. Import of goods and services grew by 8.21 percent in 2018 as compared to contraction in growth by (-0.95) percent in 2017.

In the service sector, the number of tourist arrivals in the country mainly drives hotel and restaurant sector. In 2018, the number of international visitors’ arrival increased by a meagre 1.80 percent. With minimal increase in the inflow of the tourists, the sector’s growth dropped to 10.51 percent from 15.20 percent growth in 2017.

The transport, storage and communication recorded 10.90 percent growth in 2018 from 13.34 percent in 2017, down by 2.44 percentage points.

The wholesale and retail trade sector (trade and repair of motor vehicles, motorcycle, personal and household appliances) growth decelerated marginally from 10.41 percent in 2017 to 10.18 percent in 2018, down by 0.23 percentage points.

Within the manufacturing sector, food and cement manufacturing industries, which had a negative growth in 2017, was the main contributor to the growth in 2018. The food and cement manufacturing subsector grew by 16.76 and 9.27 percent respectively.

Albeit the slowdown, it is observed that little progress was made in the labor market as labor force participation fell from 65.7 percent in 2017 to 62.6 percent in 2018.

Agriculture contributes only 10 percent to GDP but accounts for 54 percent of employment. An independent study also found that the average annual output per worker in agriculture is less than Nu 42,000, compared with Nu 663,450 and Nu 232,103 in the secondary and tertiary sectors respectively.

One underlying fact is that planned economic development laid a strong foundation for a modern economy. Plan documents from the first to the fourth Five-Year Plans (1961 to 1980), also emphasizes on developing necessary economic infrastructure for development, through the promotion of agriculture, industry, health and education sector.

Today, three decades later, the country is examining the same priorities, even as the country prepares to graduate from LDC. The country is continuing to invest in these same sectors.

Growing youth unemployment, continued dependence on aid and imports, persistent structural and supply bottlenecks, and uneven distribution of income are some of the visible challenges.