Needs to pri­or­i­tize on vi­brant and job cre­at­ing pri­vate sec­tor: World Bank

Bhutan Times - - Home - Thuk­ten Zangpo

En­sur­ing a vi­brant, job cre­at­ing pri­vate sec­tor re­mains a longer term chal­lenge, ac­cord­ing to World Bank’s Bhutan De­vel­op­ment Up­date.

Although, hy­dropower projects are back­bone of the coun­try, how­ever, it con­trib­utes lit­tle to a job cre­ation and the di­rect im­pact of growth on poverty re­duc­tion is ex­pected to be mod­est. In ad­di­tion, the sec­tor has also wit­nessed hy­dropower con­struc­tion de­lays in the past few years, which have ad­vere­sely im­pacted growth, rev­enues, and ex­ports.

The re­port also states that due to low pro­duc­tiv­ity growth in agri­cul­tural ac­tiv­i­ties (which still ac­counts for nearly 60 per­cent of em­ploy­ment) and lim­ited pri­vate sec­tor de­vel­op­ment, the tran­si­tion out of farm­ing into more pro­duc­tive jobs will likely hap­pen at a slow pace.

In­ter­na­tional Mone­tary Fund and Asian De­vel­op­ment Bank have also pointed out the de­cel­era- tion in eco­nomic growth this year due to sharp de­cline in pub­lic in­vest­ment. How­ever, the po­si­tion is ex­pected to im­prove with the op­er­a­tion of Mangdechhu project. The Hy­dropower Com­mit­tee has al­ready sug­gested a go slow in the projects and ap­proach them more strate­gi­cally.

The World Bank re­port also sug­gests that Bhutan re­mains as risk of ad­verse weather events and nat­u­ral dis­as­ters. How­ever, the ma­jor­ity of agri­cul­tural land is rain fed, and ir­ri­gated ar­eas are lim­ited. In the past sev­eral years, hy­dropower pro­duc­tion fluc­tu­ated sig­nif­i­cantly, which out­side the pe­ri­odic com­ing on stream of new projects is largely the re­sult of weather.

The World Bank rec­om­mends the four key risks fac­ing the Bhutanese econ­omy, that any fur­ther de­lays in hy­dropower con­struc­tion will lower ex­ports and rev­enues, lim­ited fi­nanc­ing sources, in­clud­ing donor fi­nanc­ing, could con­strain gov­ern­ment spend­ing and neg­a­tively af­fect fu­ture growth and de­vel­op­ment, pol­icy un­cer­tainty af­ter the 2018 gen­eral elec­tion could im­pact growth and in­vest­ment, and ad­verse weather events could neg­a­tively af­fect the econ­omy through hy­dropower and agri­cul­ture.

Elec­tric­ity gen­er­a­tion in Fis­cal year 2017/18 was 3 per­cent lower than in fis­cal year 2016/17 due to less fa­vor­able weather.

It asked the gov­ern­ment to re­vise the fi­nan­cial year 2018/19 bud­get(in­terim bud­get in place) and en­dorse 12th five year plan.

World Bank es­ti­mates the eco­nomic growth in fis­cal year 2017/18 is at 5.8 per­cent. This is due to de­lays in hy­dropower con­struc­tion and de­cline in elec­tric­ity gen­er­a­tion ham­pered growth.

How­ever, ser­vices growth re­mained buoy­ant, pri­mar­ily driven by fi­nan­cial ser­vices, ho­tels and restau­rants. Macroe­co­nomic sta­bil­ity has been main­tained.

Prices re­mained stable, the fis­cal deficit was con­tained, and de­spite a large cur­rent ac­count deficit, in­ter­na­tional re­serves re­main com­fort­able at 11 months of im­ports of goods and ser­vices.

Ex­ter­nal debt re­mains high, but is not on an in­creas­ing tra­jec­tory and the risk of debt dis­tress is deemed mod­er­ate.

World Bank projects eco­nomic growth to av­er­age 6 per­cent a year over the medium term, largely sup­ported by on­go­ing hy­dropower projects and the ser­vices sec­tor, es­pe­cially tourism.

World Bank re­port states that do­mes­tic elec­tric­ity sales in­creased by 66 per­cent due to strong de­mand by the man­u­fac­tur­ing sec­tor (pri­mar­ily food pro­cess­ing). As a re­sult, elec­tric­ity ex­ports fell by 9 per­cent. The per­for­mance of hy­dropower pro­duc­tion neg­a­tively af­fected the growth rate. As the elec­tric­ity and wa­ter sec­tor ac­count for 13 per­cent of Bhutan’s GDP, and the de­cline in hy­dropower pro­duc­tion in fis­cal year 2017/18 may have re­duced GDP growth rate by 0.4 per­cent.

The num­ber of in­terna- tional tourists (ex­clud­ing re­gional tourists) in fis­cal year 2017/18 was 59,000, al­most the same as in fis­cal year 2016/17. In late fis­cal year 2016/17, Bhutan of­fered a spe­cial pack­age for Kore­ans, which raised the num­ber of Korean tourist ar­rivals. Over­all, the num­ber of in­ter­na­tional tourists in fis­cal year 2017/18 was al­most the same as in the pre­vi­ous year, as the de­cline in Korean tourist ap­provals was off­set by the in­crease in tourist ar­rivals from other coun­tries.

Dur­ing the first three quar­ters of fis­cal year 2017/18, the to­tal sales val­ues of ma­jor man­u­fac­tur­ing com­pa­nies, such as food pro­cess­ing and car­bide, in­creased by 19 per­cent com­pared with the same pe­riod in fis­cal year 2016/17. Do­mes­tic sales in­creased by 17 per­cent, and ex­ports rose by 21per­cent. Although in­ven­tory data is not avail­able, the sig­nif­i­cant in­crease in the sales val­ues in­di­cates that man­u­fac­tur­ing pro­duc­tion in­creased.

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