Thukten Zangpo

The country’s economic growth rate is expected to reach 8.9 percent next year, driven by the anticipated commissioning of the Puna-II project, improvements in the manufacturing and construction sectors, and growth in tourism and related industries.

This is according to the budget report 2024-25.

The report also indicates that government initiatives like the Economic Stimulus Programme (ESP) will further drive economic growth.

This year, the economy is projected to grow at 6.3 percent, up from an estimated 4.5 percent in 2023.

For the fiscal year 2024-25, the government has allocated Nu 97.63 billion, the first year of the 13th Plan. From Nu 15 billion Economic Stimulus Programme (ESP), the government is yet to disburse the first tranche of Nu 2.5 billion.

“This growth is mainly driven by government investments, especially in 2025, followed by modest increase in private investments on account of lifting loan moratorium,” the report states.

It added that as the tourism sector gradually rebounds, both international and regional arrivals are expected to increase, contributing positively to the economic growth.

In the agriculture sector, growth was estimated at 1.8 percent in 2023 following a decline of -1.1 percent in 2022. Growth is expected to rebound with increases projected in both crop and livestock production.It is anticipated to reach 5 percent in 2024 and 2025.

However, the report highlights challenges such as climate-related vulnerabilities and low productivity hindering its growth potential.

To address these, the government will pursue market-related interventions and policies.

The industry sector is expected to grow by 6.7 percent and 17.7 percent in 2024 and 2025, respectively.

This is mainly because of the commissioning of Puna-II, influencing the electricity sector growth to 5.6 percent, and 28.9 percent in 2024 and 2025, respectively.

The growth is also expected to be driven by increased activity in mining and quarrying, as well as the construction sector. This is attributed to the lifting of the moratorium and higher government expenditure on construction projects.

Increased electricity demand from domestic industries is expected to fuel manufacturing growth, projected at 8.6 percent in 2025 from 6.9 percent in 2024.

In 2023, the industrial sector growth was projected to decline to -4.9 percent, primarily due to contractions in the electricity and construction sectors by -8.3 percent and -7.9 percent, respectively.

This downturn was attributed to reduced government and hydropower construction spending and unfavorable hydrological conditions.

On the other hand, the mining, quarrying, and manufacturing sectors are expected to grow by 7.9 percent and 4.5 percent, respectively.

In the service sector, with the government’s target of increasing the tourist number to 200,000 and 300,000 in 2024 and 2025, respectively, the tourism sector is expected to rebound sharply.

This is expected to have a stimulative effect on its allied sectors like transport, hotel, and entertainment sectors. The transport and storage sector is anticipated to increase by 5.9 percent and 7.3 percent in 2024 and 2025, respectively.

Hotel and restaurant service is expected to increase by 16.2 per cent in 2024, and 20.7 percent in 2025. Outlook for entertainment, recreation and other services look positive for both 2024 and 2025, which could drive the sector’s growth.

In 2023, the service sector was estimated to expand by 10.7 percent. This expansion was expected due to the mild recovery of the tourism sector, which has had a spillover impact on various sectors such as trade, transport, hotels and restaurants, and entertainment and recreational services.

However, the report states that there are downside risks to this outlook as the economy is influenced by both global and domestic factors. “The commodity market and exchange rate shocks could cause downside risk on Bhutanese economy resulting in deterioration of the economy,” warns the report.