Revived domestic demand enhances economy

 Strategies to enhance education and labour skills attuned to economic demand will make growth more inclusive, ADB says

Economy: The country’s economy has grown because the aggregate demand, which faltered under import and credit restrictions imposed in 2012, picked up, according to the Asian Development Bank (ADB).

Aggregate demand, or final domestic demand is the total amount of goods and services demanded in the economy.

The ADB in its economic outlook for 2016 states that economic growth slowed in recent years as domestic demand sunk because of import and credit restrictions imposed to stem shortages of Indian rupee reserves.

“With the restrictions lifted in September 2014 and hydropower construction back on track, gross fixed investment strongly recovered, and imports of machinery and equipment markedly pick up,” the report states.

Economic growth accelerated in the 2015 fiscal year on revived domestic demand and continued expansion of construction of large hydropower projects.

During a press conference last week, the opposition party also questioned whether the economic growth occurred as a result of starting new industries or generating employment. The party claimed that growth has been fuelled by government expenditure propelled by aid and grants, which is not sustainable.

“Strategies to enhance education and labour skills that are more attuned to economic demands will help make growth in Bhutan more inclusive,” the report states.

Faster growth in the service sector was broad based, led by the revival in wholesale trade and financial activities. Hotels and transport gained from double-digit growth in tourist arrivals, while socioeconomic services rose from increased public spending.

Industrial growth advanced on a robust pickup in construction and import-related manufacturing. Growth in industry, ADB states, is expected to strengthen moderately in the fiscal year 2016 as electricity output increases. It will however ease slightly in 2017 because no new hydropower capacity is expected until at least 2018, ADB projects.

The service sector is projected to maintain momentum in the fiscal year 2016 on robust domestic demand that will benefit retail trade, hotels and restaurants and finance. Strengthened wholesale trade is expected to support domestic construction.

The Opposition however said that growth in retail trading will intensify trade deficit as most goods are imported.

The ADB projects the GDP growth to climb moderately to 6.4 percent in the fiscal year 2016 before easing slightly to 6.1 percent in fiscal year 2017.

The World Bank has also projected similar figures. The World Bank states that the growth will be driven by new hydropower investments, government consumption, and spending.

Bhutan runs a large current account deficit of which half is related to hydropower.

“Private sector development and asset diversification are keys to reducing vulnerability to donor finance and address rising youth unemployment.”

Meanwhile, the World Bank expects India to experience robust growth, on the back of which South Asia would emerge fastest-growing region in the world, with combined economic growth forecasted to gradually accelerate from 7.1 percent in 2016 to 7.3 percent in 2017.

According to the twice-a-year report, South Asia Economic Focus, the region’s economic performance prospects remain strong due to its limited exposure to global turbulence, coupled with increasing investment activity.

“However, fiscal and financial vulnerabilities remain and countries should strive to address them through generating revenue and creating more fiscal space,” the report states.

Tshering Dorji

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