Yearender/Outlook: Pondering over the Sheep’s yield, the Monkey is likely to cart a wagonload of national fortune, at least on the economic front.

The Wood female Sheep year has witnessed many transformations and activities in the economy and it is the Monkey’s turn to harvest the fruits, bitter or sweet.

With the caveat that predicting economy is a futile job, Bhutan’s economic growth is forecasted between six and seven percent. However, this would mainly be driven by the government investment and investment in hydropower, as usual.

The Monkey year is also the third year of 11th Plan where largest share of budget of close to Nu 50B will be poured into the economy, propelling government expenditure.

Possibly in the next two years, the size of the economy is bound to reach the highest level because initial estimates of investment in hydropower itself is twice the size of economy.

A couple of hydropower projects are expected to go full swing this year, resulting in more consumption. Hydropower-related imports will slow toward the end of the government’s Eleventh Five Year Plan in 2018.

Notwithstanding the upside pressures from increased government spending and wages, inflation is expected to ease further this year driven by projected fall in fuel price.

The Asian Development Bank projects the country’s current account deficit to a quarter of GDP, which is still considered high.

Trade other than electricity will benefit from low oil prices, but the deficit will continue to reflect large private imports because of improved access to finance. The rate of vehicle import, which today stands staggeringly high since the lifting of the ban, is likely to stabilise.

However, if current monetary policies are not monitored the risk of liquidity remains very high.

Sufficient capital and financial flows from funds tied to projects will help keep the overall balance in surplus and international reserves adequate.

The hydropower activities will create demand for both fuel and domestic electricity consumption. Should the projects delay, the country will have to import more power.

If the services of Business Opportunity and Information Centre (BOiC) are continued under the new state enterprise with improved service delivery, cottage, small and medium industry is bound to grow.

But foreign investment into the economy, according to economists, is not likely to sprout even with the revision of FDI policy unless the ground reality changes. Innovation, technology, human capital and market size will subdue the comparative advantage of political stability. It is for all to see how and by how much the recently launched brand Bhutan will help local product proliferate in the international market.

In the words of the economic affairs minister, the country need to capitalize on the low hanging fruits- the identified five jewels. “But is the government providing adequate incentives into harvest those low-hanging fruits?” many in the business sector echoed this question.

The improved performance of Dungsam and other corporations and individual income would increase the tax revenue. In addition, Kurichhu would bring Nu 115M additional revenue to the national coffer, after liquidating its loan. Likewise Dagachhu would also add to the electricity revenue.

Despite a projection of a busy Monkey year, public spending still constitutes over 90 percent of the economy. This will subdue the private sector growth. Credit market is largely dominated by building and construction and personal loans.

Bhutan’s stock market may need more strengthening. The stock exchange is today working on establishing a commodity exchange to boost agriculture production.

With stagnant unemployment figures last year, local economists claim that the government might have to consider revisiting the policies.

Bhutan’s total external debt stock has reached 98 percent of the GDP, majority of which is accumulated for hydropower projects. The government is already working on a draft debt management policy.

Minus the uncertainties, the economy is bound to improve. But like the Monkey, it is hard to predict because a boom always precedes bust in any economy

Tshering Dorji