Thukten Zangpo 

The government is targeting an annual economic growth rate of 8 percent, Finance Minister Lekey Dorji said that during a press meeting yesterday.

This goal is set with the aim of doubling the country’s gross domestic product (GDP) from USD 2.5 billion to USD 5 billion by the year 2029, aligned to the 13th Plan. By 2034, Bhutan aims to achieve a high-income status with an economy valued at USD 10 billion.

“Economists suggest that Bhutan can double its GDP within the next five years through the multiplier effect generated by 8 percent annual growth rate,” Lyonpo stated.  

He added that if this growth trajectory is not maintained, the country would likely require another 20 years to achieve the same level of GDP doubling, based on past growth rate trends.

The multiplier effect illustrates how a single initial injection of spending or investment can trigger a broader impact on the economy, resulting in a larger overall increase in GDP than the initial stimulus alone. 

This means that when money is injected into the economy through spending or investment, it circulates and generates additional economic activity, creating a ripple effect that boosts GDP beyond the original amount invested or spent.

To attain the targeted GDP growth, he also mentioned that the government has committed to a Nu 15 billion Economic Stimulus Programme (ESP) aimed at economic revival. This program is presently under review, with the Prime Minister chairing the economic development board committee.

Lyonpo also said that the tourism industry, with an annual target of 300,000 arrivals in the country, is expected to provide significant support to other sectors interconnected with it.

Excluding the total budget outlay of Nu 512 billion for the 13th Plan, he said that Nu 310 billion has been allocated for hydropower and renewable energy, and additionally other investments in infrastructure development in the Gelephu Mindfulness City. 

These investments are expected to play a significant role in contributing to the GDP growth.

The government also plans to double the foreign direct investments from Nu 48 billion last year to Nu 100 billion in the next five years. 

In the draft 13th Plan, India has committed Nu 85 billion in financial assistance, along with an additional Nu 15 billion for the ESP.

For the Plan’s execution, Nu 250 billion has been allocated for capital expenditure and Nu 262.48 billion for current expenditure.

As the country’s economy expands, it becomes increasingly important to assess not only the rate of growth but also the efficiency of that growth.

The Incremental Capital Output Ratio (ICOR) shows the connection between the level of investment in an economy and the subsequent increase in its GDP. 

Bhutan experienced an ICOR of 8.3 in 2019, which rose to 10.6 in 2021 and further to 11.1 in 2022. During this period, the investment rate stood at 45.3 percent of GDP in 2019, remained at 45 percent in 2021, and increased to 55.1 percent in 2022. 

Meanwhile, the GDP growth rates were recorded at 5.8 percent in 2019, 4.4 percent in 2021, and 5.2 percent in 2022.

A higher ICOR implies lower productivity of capital, indicating that a greater amount of investment is needed to generate a unit increase in production. 

Conversely, a lower ICOR suggests that less investment is required to achieve a given growth rate, signifying a more efficient use of capital.

Bhutan’s ICOR of 11.1 in 2022 indicates that Nu 11.1 worth of capital investment is necessary to generate Nu 1 of additional production. 

Comparatively, the previous year’s ICOR of 10.6 suggests a decline in efficiency regarding capital utilisation.

Economists recommend an ideal ICOR range of 3-4 percent for optimal economic performance. Most countries typically maintain an ICOR near 3 and Bhutan’s ICOR of 11.1 signifies one of the highest ICOR or inefficient economies globally.