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