The Asian Development Bank (ADB) has projected Bhutan’s economy to grow by 5.5 % this year.
In a report released in September, the ADB projected a growth rate of 7% for 2024, due to increased government spending, higher electricity production, and a surge in tourism.
The ADB report said, “A 17 percent increase in the government budget forthe2024-25fiscal year will spur industrial growth and boost domestic demand this year and next.”
The commissioning of the Punatsangchhu-II hydropower project and the lifting of the credit moratorium in July expected to boost GDP growth.
An expected increase in tourism, supported by increased promotional activities and the implementation of a US$318 million economic stimulus program expected to further boost growth.
ADB has slightly raised its inflation outlook since April, with headline inflation averaging 4.7%y/y in January-April 2024, slightly higher than forecast. The high food price inflation, averaging 6.1%duringthisperiod, was the main contributing factor.
However, as the harvest season in Bhutan begins in the coming months, food prices are expected to decline, reflecting similar trends in food prices in India.
Non-food price inflation reported to have averaged 3.5% in the first four months of the year, driven by price increases in housing and utilities, while health services and telecommunications are expected to rise slightly during the year.
The ADB cautions against risks to economic growth and inflation due to Bhutan’s widening budget deficit and weak external reserves.
Bhutan’s gross international reserves have fallen from covering 14.7 months of imports in December 2019 to about 4.5 months as of May 2024, ADB said. During this period, foreign exchange reserves fell below the constitutional threshold ofUS$670 million, due to higher food and fuel prices and a deteriorating current account balance due to a significant increase in imports of bitcoin mining equipment.
Bhutan’s heavy reliance on imports could further reduce foreign exchange reserves and trigger restrictive countermeasures that would reduce the growth rate.
As of March of this year, foreign exchange reserves reported atUS$699.6 million (US$475.75 million or INR 18.66 billion) but had declined toUS$596.85 million (US$423.39 million or INR 14.45 billion) as of June of this year.
ADB also warned that energy output could be hit by delays in the commissioning of the Punatshangchu-II project, geological contingencies that could delay other hydropower projects, and lower hydrologic flows. Other risks include volatile commodity prices, geopolitical tensions, and a global economic slowdown, which could affect services and exports.