Thukten Zangpo


The country’s economic growth is projected to slow down, dropping below pre-pandemic levels to 3.8 percent in 2023 and 4.7 percent in the current year.

This is according to the October last year updates from the Macroeconomic Framework Technical Committee (MFCTC) in the recently released Royal Monetary Authority’s (RMA) Annual Report 2023.

The decline in growth last year was primarily attributed to a downturn in construction activity, a sector that contributed 27 percent to the service sector. The sector’s contribution was expected to decline sharply to negative 26.5 percent in 2023 due to the impact of a temporary loan moratorium for the construction of commercial buildings and real estates.

In 2022, the economy showed a growth rate of 5.2 percent, surpassing the 4.4 percent recorded in the previous year. This growth was fuelled by robust performances in hotels and restaurants, construction, and trade.

Hydropower, a key contributor to growth, was estimated to experience a temporary decline of negative 0.1 percent in 2023 before rebounding to 8.9 percent in 2024, driven by the commissioning of Punatsangchhu-II and Nikachhu hydro-projects.

Agriculture, livestock, and forestry, are projected to grow at 1.6 percent in 2024, supported by measures to enhance agricultural productivity, including an improved supply chain, mechanisation, favorable weather conditions, and increased access to credit.

The report indicates a pickup in private consumption following revisions in public salaries and wages. Public investment is anticipated to decrease by 45 percent in 2023, while private investment is expected to grow by an average of 2.8 percent.

The labour market’s incomplete recovery and a rising number of graduates prompt the RMA to call for urgent policy measures to address unemployment challenges. The unemployment rate, which was 5.9 percent in 2022, is expected to decrease to 4.5 to 5 percent by 2024.

Headline consumer price inflation rose to 5.1 percent in October last year, driven by increased housing and energy prices. It is projected to further rise to 5.5 percent in the fiscal year 2023-24.

With increased government investment and economic activities picking up, the country’s fiscal policy is expected to face a potential debt overhang. Debt overhang is when a country incurs too much debt and is unable to fund future projects.

For fiscal year 2023-24, domestic revenue is estimated to grow by 18.3 percent, reaching Nu 53.08 billion, while the total budget outlay is expected to increase by 8.4 percent to Nu 75.012 billion.

The fiscal deficit for this fiscal year is estimated at Nu 15.14 billion or 5.6 percent of the gross domestic product, reflecting a 35.9 percent increase compared to the previous fiscal year. Despite the rise in the fiscal deficit, public debt is expected to grow to 99 percent of GDP in FY 2023-24, down from 106 percent in FY 2022-23 because of an increase in borrowings for hydropower construction and to finance external imbalance.

The RMA cautions that delays in hydropower project completion, coupled with a sharp fall in domestic revenue, could introduce uncertainties in the future.

The trade deficit is projected to grow to 20.2 percent of GDP in 2023-24 from 24.3 percent in the previous year. However, the commissioning of two hydropower plants is expected to improve the trade deficit.

Despite these challenges, a gradual recovery in economic activities is expected, fueled by increased demand for investment in the hotel and tourism, trade and commerce sectors, and overseas higher education loans.

The RMA’s assessment concludes that while economic activities have not yet reached their potential, the economy remains highly vulnerable to economic shocks.

The Authority stated that active monitoring and measures are in place to stimulate the economy, addressing trade imbalances, inflationary pressures, and Ngultrum depreciation against the USD while ensuring financial stability through careful credit flow moderation.