ADB Outlook forecasts 7 % GDP growth in 2025

Bhutan’s Gross Domestic Product is projected to grow at 7 per cent next year. The growth projection is according to the Asian Development Bank’s latest edition of the flagship economic publication, Asian Development Outlook, released today. According to the report, the GDP growth rate is expected to be driven largely by the service and energy sectors. In addition, the report forecasts a GDP growth rate of 4.4 per cent this year.

Growth in the services sector will be a driving force for the increase in GDP growth in 2024. According to the Asian Development Bank’s outlook, greater hydropower generation will further boost the GDP growth in 2025. The outlook forecasts services to expand by 6.5 per cent in 2024 with tourist arrivals expected to reach 60 per cent of the 2019 pre-pandemic level.

In addition, industry output is expected to rebound to 2.5 per cent. Contribution from the Nikachhu Hydropower plant commissioned early this year will add to the growth according to the outlook.

Contribution from the services sector is projected to remain strong in 2025 with a steady growth in tourist arrivals. In addition, industry output is expected to expand mainly due to double-digit growth in electricity and construction. The full commissioning of the Punatsangchhu II hydropower plant is expected to raise industrial output markedly and add close to 5 percentage points to the GDP growth in 2025.

The ADB Outlook’s GDP forecast of 7 per cent for next year is 1.3 per cent higher than the World Bank’s projection of 5.7 per cent for the financial year 2024-2025.

“Comparable to a certain extent, ADB’s and World Bank’s data will be different because theirs is reported in a fiscal year basis. Ours is reported on calendar year basis. The government has adopted a mixed mode of reporting. Their fiscal data are on fiscal basis but the GDP is on calendar basis. So, we need to be cognizant of that. But as I said irrespective of the difference in the number, what you need to look at is the direction. We should be alarmed if the World Bank or the government’s projection is in the negative territory and the ADB is in the positive,” said Sonam Lhendup, Economics Officer of Bhutan Resident Mission, ADB.

The ADB Outlook also forecasts a rise in inflation this year reflecting increased spending driven mainly by the civil servants’ salary hike since mid-last year. The report projects inflation to rise to 4.5 per cent this year and moderate to 4.2 per cent next year.

However, according to the ADB Outlook, potential external and domestic risks could derail the growth projection. External risks include lower-than-expected tourist arrivals which could adversely affect foreign currency reserves. Erratic monsoons or floods could depress farm output and hydro energy generation, as well as damage  infrastructure. Domestic risks include delays in the commissioning of the hydropower plants, continuing attrition of employees from both the public and the private sector, and mass migration of youth talent to developed economies.

The Outlook highlights the need for Bhutan to adopt an innovative and inclusive financing strategy that engages the private sector to become a more prosperous economy by 2034.

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