A World Bank report “Bhutan Development Update” projects the country’s economic growth to be at 7.3% in 2014. The growth would be on the basis of ongoing construction of four hydro-projects, the work of the Dagachu project to be completed by mid 2014, production by Dungsam Cement, the possible lift of the bans of imports and housing credit, disbursement from India to finance 11th Five year plan leading to higher public capital spending, the economic stimulus plan, increased public wages expected in the FY 14/15 budget and expansion of tourism with innovative measures.
For 2013, the report expects growth to be at 6.5% due to constructions of the hydro-projects, more electricity generation and also overall better agricultural performance. 2013 saw a 10.7% increase in electricity generation due to better rainfall, the report reveals.
But, the year 2012 saw lowest growth at 4.6% since 2008. The report reasons it be because of the government measures to resolve the rupee shortages which lead to a halt in the construction sector and a poor record in agricultural production.
In the agriculture sector, growth in 2013 is expected to rebound, through improved paddy production and increase in the vegetable production, it states. As per the Food and Agriculture Organization the paddy harvest in 2013 is expected to increase by 4% in 2013 compared to 2012 which is 50% of domestic consumption. Vegetable production has reached 98 percent of production despite cyclone Phailin.
The increase in industrial electricity tariffs in Ferro-alloys industry, would have a modest impact as the industry will still be competitively priced compared with those of India, China, South Africa and Russia. It recommends that the sector should continue to expand despite the higher energy cost.
With the freeze on housing loans, there was slow growth in the construction sector excluding hydropower. With four hydro-projects under construction at an average annual investment cost of 28% of GDP, the progress has been sustained. But, the delay in construction of Punatsangchu I and geological challenges have halted construction and timely completion.
With the Dungsam cement starting production, it is expected to rebound in 2014, compared to 2013 where it showed a decrease in production, the report states.
In 2013, the service sector recorded fragile growth due to weak tourism growth, delay in Punatsangchu I construction and tightening of credit in the financial sector. According to World Bank hotels, restaurants and trade/retail are to grow at the estimate rate of 10% in 2013.
The activities in the Banking sector were passive, with liquidity drying up in line with the Royal Monetary initiative to restrict housing loans, it adds.
With regards to tourism industry, the report states that in 2013 Bhutan drew only 10% more tourists thereby leading to a low 1% increase in convertible currency which is the lowest growth in five years. Bhutan is also facing competition from the countries like Myanmar and Sri Lanka.
The year also saw the highest numbers of tourist from America with 6927 compared to 4015 Japanese. The second highest visitors were from China with 4764 tourists.
Bhutan’s measures to boost the economy could risk resumption of overheating and imbalances in the financial system of the country, if the macro-economic pressure on domestic demand is not managed well, a World Bank report states.
To avoid a rupee shortage problem in the future, the report recommends measures like a tight fiscal policy and monetary policy in the light of the fact that the government is in the process of disbursing funds through the economic stimulus plan, giving pay hike of civil servants and freeing the restrictions over the foreign exchange, vehicle imports and housing loans.