Inflation to peak at 6.87% by end of 2021

PM presents the State of the economy in the SOTN

The State of the Nation report presented by the Prime Minister said supply chain disruptions and increasing commodity prices contributed to high food inflation with another factor being switching of drivers between high and low risk areas.  Soaring prices have been observed for various common household items including vegetables, fats and oils and dairy products while the increasing rents, fuel prices and unfair market practices have adversely affected purchasing capacities of many households.

The Consumer Price Index (CPI) was recorded at 5.63 percent in 2020. In February 2021, inflation peaked at 9.5 percent before falling to 5.3 percent in August. The month-on-month CPI inflation in August increased by 0.23 percent compared to July which is attributable to an increase in non-food prices by 0.43 percent. The transportation sector was the main contributor behind the increase in non-food prices. By the end of 2021, the inflation rate is projected to reach 6.87 percent.

COVID-19 containment measures that included closure of international borders had a huge bearing on the revenue sectors.

The GDP growth rate dropped to an all-time low of -10.08 percent in 2020, a huge slide from 5.76 percent in 2019. Meanwhile, the Gross National Income (GNI) was recorded at -7.23 percent in 2020, which is a drop of more than 12 percentage points from the previous year. As an import driven nation, Bhutan was hit harder but this has given the country an opportunity to re-look into investments and forge a better path ahead.

The real economic loss ascertained for 2020 was Nu 7.3 billion, and without the National Relief Fund support, it would have been much higher at Nu 10.5 billion. The key sectors that contributed to the contraction of the economy were Mining and Quarrying by -81.84 percent, Hotel and Restaurants by        -73.46 percent, Manufacturing, Construction, and Transport and Communication by -20.76 percent, -20.64 percent, and -14.65 percent respectively. On the expenditure side, household final consumption expenditure declined by 7.95 percent

The primary sector (agriculture, livestock and forestry) saw one of the highest growths in the last five years. It recorded a growth of 4.57 percent in 2020. It was a result of improvements in performance of all the three sub-sectors of crops, livestock, and forestry and logging. The secondary sector (industry) sadly saw a steep decline as the impact of the pandemic grew by the month. It dropped by -13.10 percent in 2020 from a positive growth of 2.01 percent in 2019.

The hydropower sector, however, remained resilient to the pandemic’s effects thereby mitigating the overall adverse impacts on the economy. A substantial increase in electricity export earnings facilitated by the commission of the Mangdechu Project mitigated the setbacks to a large extent.

Despite the pandemic, the total resources mobilized in fiscal year 2020-21 was Nu 59.696 bn, of which 60 percent was domestic and the remaining was from grants and other receipts. While the domestic revenue mobilised amounting to Nu 35.855 bn exceeded the target by 8 percent, it was one percent dip compared to the fiscal year 2019- 20. Profit transfer of Nu 7.375 bn from the Mangdechu Hydropower Project brought about a significant offset.

Debt has been a growing national concern. The total public debt stock stood at Nu 240.897 bn as of 30 September 2021.

 It comprises an external debt stock of Nu 219.823 bn and a domestic debt stock of Nu 21.074 bn. It has increased by one percent, compared to 30 June 2021. The increase is a result of a rise in T-Bills stocks by Nu 4 bn.

Meanwhile, the external debt decreased by Nu 1.501 bn (-0.7 percent) mainly on account of the Mangdechu Hydropower Project Authority repayment. The second principal repayment of Nu 1.392 bn was made in July 2021 based on the draft protocol between the Bhutan and India.

The domestic debt stock increased by Nu 4 bn (23.4 percent), compared to the domestic debt stock of 30 June 2021. The increase was due to additional issuance of T-bills for cash management purposes during the quarter.

Check Also

Buyers not happy with the Supreme Court verdict to return Debsi land

According to the verdict from the Supreme Court, Gup Kanjur is to either give the …

Leave a Reply

Your email address will not be published. Required fields are marked *