The decline in investments, national elections this year, and the transition into a new five-year plan mean Bhutan’s gross domestic product (GDP) growth rate will slow down this year and next year. According to the Asian Development Bank’s (ADB) latest Asian Development Outlook report, released today, the country’s GDP will slow down to 4.6 per cent this year and further drop to 4.2 per cent next year.
A return to normal hydropower production after two years of decline will reinforce growth this year, while the Punatsangchhu-II and Nikachhu hydropower plants will help support economic growth in 2024.
According to the development outlook report, the expected revenue from the commissioning of the two new hydropower plants will raise the GDP by three percentage points.
Similarly, in a news briefing during the launch of the development outlook report today, the ADB’s Bhutan Resident Mission says the recovery in tourist arrivals has been slow due to an increase in the sustainable development fee.
According to the report, total tourist arrivals in 2023 will considerably be higher than in 2022, which will boost foreign reserves and services.
However, according to the Bhutan Resident Mission’s Country Director, a steep rise in SDF will have a direct impact on the growth of the accommodation and food services sector.
“Tourism is much more important than just the revenue from SDF that is going to the government. Tourism is a sector and more so for Bhutan, which has so much intensive, backwards forward linkages. Right. I mean, this hotel or a three-star hotel or a two-star hotel, I mean, they are buying vegetables, they’re buying fish, they’re buying chicken, they are employing waiters, waitresses, chefs, jobs for tour guides, jobs for tour operators,” said Shamit Chakravarti, the Country Director of ADB.
On the other hand, the report states that if foreign exchange reserves continue to decline at the 2022 rate, it will likely breach the constitutionally mandated requirement to have reserves to cover 12 months of essential imports.
According to the report, apart from essential imports, Bhutan’s information technology imports increased to about Nu 17bn last year as compared to Nu 800 M in 2019.
“The foreign exchange going down is a result of many factors. Depreciation of the rupee and ngultrum, increase in fuel prices, to some extent the fact that tourism is not bouncing back because of some policies. Definitely, the inflow of dollars and rupee has gone down,” added the Country Director.
The report also calls for additional reforms in private-sector development. According to the report, unless the private sector is empowered to create jobs that match the aspirations of the Bhutanese youth, people will continue to emigrate, hampering the country’s long-term development efforts.
