Bhutan economy to grow at 4.1% in current FY: World Bank

The World Bank forecast the Bhutanese economy to grow by 4.1 percent in the fiscal year 2022-23, in its report “Global Economic Prospects” report, released on January 10.

The reopening of borders in September last year is expected to support growth in the industry and services sector, the Bank said.

Bhutan’s growth has revised down by 0.6 percentage points from the World Bank’s June projection last year of 4.7 percent.

The Bank said that although the output is returning to pre-pandemic levels, slower domestic demand recovery because of high inflation and lower hydro investments are expected to decelerate growth.

It added that tourist arrivals are expected to remain subdued because of weaker consumer confidence globally and the new tourism policy, which tripled the sustainable development fee for international tourists.

Prime Minister Dr Lotay Tshering, earlier, said that Bhutan can only come out from the economic downturn caused by the Covid-19 pandemic if only the country can maintain economic growth above 4.5 percent this year.

For the fiscal year 2023-24, the bank forecasts Bhutan’s economic growth rate at 3.7 percent.

The Bank stated Bhutan’s medium-term growth was expected to remain below pre-pandemic growth because of delays in hydropower projects, which otherwise would help strengthen fiscal and external balances in the medium term.

This is expected to moderate the current account and fiscal deficit, supported by a lower trade deficit and expenditure rationalisation.

However, the Bank stated that the higher commodity prices because of the pandemic and geopolitical tensions could exert further pressure on the country’s external balance and international reserves, and weigh on external demand and tourism travel, globally and in India (given significant tourism, and trade linkages).

The country’s inflation is expected to remain elevated at 5.9 percent in this fiscal year before moderating to 5 percent in the fiscal year 2023-24, in line with projections for India and the projected fall of energy prices.

According to the World Bank, the economic growth of neighbouring country, India, is expected to be 6.9 percent in this fiscal year, revised down by 0.6 percentage points from June last year’s projection.

The economy of Bangladesh, one of the major trading partners of Bhutan, is expected to grow at 5.2 percent, which was also revised down by 1.5 percentage points.

The global economy is projected to grow by 1.7 percent in 2023 from 3 percent expected six months ago.

“Given fragile economic conditions, any new adverse development-higher than expected inflation, abrupt rises in interest rates to contain it, a resurgence of the Covid-19 pandemic, or escalating geopolitical tensions could push the global economy into recession,” the bank said. This would mark the first time in 80 years that two global recessions have occurred within the same decade.

The bank warned that the sharp, long-lasting slowdown of economic growth would hit developing countries hard.

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