… driven by reductions in public investment and capital expenditure

Thukten Zangpo

Bhutan’s economic growth is forecast to slow down at 4 percent in the fiscal year 2023-24 following drop in the public investment and capital expenditure, said World Bank in its biannual ‘Global Economic Prospects’ report on Tuesday.

However, the projection is 0.9 percentage points above the Bank’s projection at 3.1 percent in June last year’s update.

While the Asian Development Bank’s December (2023) update forecast an economic growth rate of 4.3 percent for 2023 and 4.4 percent in 2024.

Going by the finance ministry’s budget allocation figures, the capital expenditure allocation has been declining over the years.

In the FY 2022-23, the actual capital expenditure decreased by 23.5 percent to Nu 33.52 billion compared to the revised capital budget of Nu 43.34 billion.

For FY 2023-24, the government had allocated Nu 29.32 billion as capital budget, a decrease of 12.5 percent from the previous FY.

The ministry had estimated a budget allocation of Nu 30 billion as capital and Nu 48.49 billion as recurrent for FY 2024-25, the first year of the 13th Plan.

Capital expenditure, expenses made in infrastructure development, construction and other sectors help to generate real capital in the economy. It creates an environment conducive to generating employment, ensuring liquidity in the banking sector and improving economic indicators for the efficiency of the country.

If the annual budget is determined to escalate the high economic growth rate, it is essential to reduce the growing burden of recurrent expenses and divert the remaining funds to development purposes.

Despite the reductions in the capital expenditure, the World Bank stated that the economy will still benefit from a strong performance in tourism related services.

To attract more tourists, Bhutan reduced the sustainable development fee of USD 200 for US dollar-paying tourists visiting the country by 50 percent or USD 100 per person per day from August last year.

The tourism sector is on a path to recovery, with an inflow of 104,304 tourists between September 23, 2022 and October 29 last year.

Between January and October 29 of the last year, 83,407 tourists visited the country, aligning with the Department of Tourism’s projection of 98,000 tourists for the entire year.

For the next FY 2024-25, the World Bank has projected the growth to pick up to 4.6 percent with recovery in industrial and service activities and commissioning of new hydro plants.

The anticipated opening of the Nikachhu power plant this month which is expected to generate 491 million units of electricity annually and the initiation of the Punatsangchhu-II plant by the end of this year could contribute to Bhutan’s economy.

The bank also stated that the National Assembly elections this year could dampen activity in the private sector, including foreign investment. It added that for the country with the weak fiscal positions, an increase in spending prior to the elections could exacerbate macro-fiscal vulnerabilities.

However, the implementation of policies to reduce uncertainty and strengthen growth potential after elections could lead to an improvement in growth prospects.

For India, the World Bank said that India was likely to maintain the fastest growth rate among the world’s largest economies, but its post-pandemic recovery was expected to slow, with estimated growth of 6.3 per cent in FY 2023-24 and 6.4 percent in FY 2024-25, before recovering gradually to 6.5 per cent in FY 2025-26.

This growth the bank attributes to India’s strong domestic demand, rising public infrastructure spending, and strong private-sector credit growth.

Global growth is expected to slow to 2.4 percent in 2024, marking the third consecutive year of deceleration because of the lagged and ongoing effects of tight monetary policies to rein in decades-high inflation, restrictive credit conditions, and anemic global trade and investment.