Economic diversification is encountered with inherent constraints associated with being landlocked and small population in addition to institutional setbacks such as lack of policy coherence, coordination and slow implementation progress in major programs.
This, according to Bhutan’s national voluntary review report of the implementation of sustainable development goals (SDG) continue to deter the growth of private investment. Further, lack of adequate infrastructure, land, access to finance and issues associated with labour market are prominent constraints faced by the private sector.
The country’s debt to GDP ratio (117 percent by mid-2016) and trade deficit of 25 percent of GDP, are some of the vexing factors deterring the sustainable and inclusive growth with decent work for all, the eighth SDG.
The report stated that Bhutan has made impressive development progress and is poised for graduation from LDC status by the end of 12th FYP having met the gross national income and Human assent index thresholds. The average economic growth rate in the last five years (2012-2016) was 5.5 percent, which placed Bhutan amongst the fastest growing economies in the world. The economy grew at 7.99 percent in 2016 and the trend is expected to continue.
However, it was highlighted that growth was mainly driven by the industry sector, particularly the construction sector with 13.3 percent in 2016. “Bhutan continues to evolve into a modern economy with the industry and services sectors growing more rapidly than the agriculture sector (primary sector),” the report stated.
The share of the primary sector reduced from 27 percent in 2000 to 16.5 percent in 2016. On the other hand, the shares of secondary and tertiary economic sectors have grown from 35 percent to 41 percent and 38 percent to 42 percent respectively, during the same period.
Economic growth, it stated, was sustained by the growth of construction sector (10.33 percent) in 2017. Other industry sub-sector recorded modest growth: the manufacturing subsector remains relatively small, accounting for only about one-fifth of the industrial sector. “The narrow based Bhutan’s manufacturing sector is also dominated by a small number of major operators and a larger number of small manufacturing plants concentrated in the food processing activities and cottage industries. In general, the manufacturing sector in Bhutan is locked into relatively low value-added products,” it stated.
The small size of domestic market offers limited opportunities to harness economies of scale for production. Capacity constraints and negligible investment in the area of science, technology and innovation are also identified as a major constraint facing the Bhutanese economy.
However, it also stated that the five jewels identified in the new economic development policy have the potential for export, revenue generation and employment creation. Initiatives such as development of ‘Brand Bhutan’ and industrial cluster approach, the report stated is set to propel the development of the selected priority sectors.
To foster non-formal rural economic growth, institution of Rural Enterprise Development Corporation and priority sector lending is expected to enhance access to finance to stimulate the cottage and small industries (CSI).
As for employment, the report highlighted that youth unemployment remains a concern.“Despite putting in place various policy instruments and strategies such as Guaranteed Employment Scheme (GES) and other employment service including entrepreneurship trainings, the youth unemployment increased from 9.2 percent in 2015 to 13 percent in 2017.
This trend, the review report stated is likely to increase as more and more young graduates enter the job market. “With half the population below 28 years-of-age, now is the time for Bhutan to capitalise on its demographic dividend, respond to the changing needs of youth, and invest in jobs,” it stated.