Bhutan’s Economy Set to Soar: IMF Raises 2023 GDP Growth Forecast

The International Monetary Fund (IMF) has raised its economic growth forecast for Bhutan in 2023 to 4.7 percent, an upward revision of 0.4 percent from its earlier projection six months ago. The IMF’s biannual “World Economic Outlook” report cited better hydrological flow and the commissioning of two hydropower plants, Punatsangchhu-II and Nikachhu, as factors driving economic growth.

However, the IMF also stated that the growth rate is expected to slow down to 3.4 percent in 2024. The forecast is slightly higher than the Asian Development Bank’s (ADB) projection of 4.6 percent for 2023 and the World Bank’s (WB) projection of 4.1 percent and 3.7 percent for the fiscal year 2022-23 and 2023-24, respectively.

Bhutan’s average consumer price inflation is expected to slow down to 4.6 percent in 2023 from 6.5 percent in 2022, according to the IMF. The current account deficit, which stood at 32.1 percent of gross domestic product in 2022, is forecast to narrow to 29 percent in 2023 and then decrease slightly to 15 percent in 2024.

While the recovery in tourist arrivals is expected to slow due to an increase in sustainable development fees, the IMF’s latest inflation rate is also lower than the ADB’s projection of 5.5 percent in 2023 and the WB’s projection of 5.9 percent for the fiscal year 2022-23 before moderating at 5 percent in the fiscal year 2023-24.

Bhutan’s widening current account deficit and declining foreign currency reserves remain a challenge for the country, according to the IMF.

The report also projected that emerging and developing Asia’s GDP will grow to 5.3 percent in 2023 before slowing down to 5.1 percent in 2024. India, Bhutan’s major trading partner, saw its growth rate lowered to 5.9 percent from 6.1 percent, but the IMF noted that the Indian economy was one of the bright spots in the global economy and previously underestimated the country’s performance.

Despite high inflation, rising geopolitical tensions, and financial stability, the IMF predicted that most countries will avoid recession this year. The global economy is expected to expand by 2.8 percent in 2023, rising to 3 percent in 2024.

The IMF’s report noted that supply chain disruptions are unwinding, while dislocations to energy and food markets caused by war are receding. It also stated that the massive and synchronised tightening of monetary policy by most central banks should start to bear fruit, with inflation moving back towards targets.

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