Economy grows seven percent over the years
Over the past, the economy grew an average growth rate of seven percent which was supported by high investments in hydropower sector, increased electricity export earning, expansion in service industry particularly in tourism sector and the public sector.
In terms of sector contribution to overall GDP, the National Budget, Financial Year, 2018- 19 states that industry sector contributed 40 percent, followed by service sector at 36 percent, and agriculture sector with 19 percent. “Regional growth for South Asia has also been growing at an average of seven percent.”
In terms of growth prospect, the report states that recent assessment by International Monetary Fund ( IMF) in its World Economic Outlet ( WEO) October 2018 reports a positive global growth outlook of 3.7 percent, same as 2017 level, despite rising trade tensions and weaker outlook for some key emerging markets and developing economies arising from country- specific factors, tighter financial conditions, geopolitical tensions, and higher oil import bills.
While growth in the region is projected to increase, external challenges and tighter global liquidity could be cause of concern, stated the report.
According to the Asian Development outlook 2018, growth forecast for India is maintained at 7.4 percent on an average for 2018 and 2019 with robust domestic demand and growing exports. However, depreciation of rupee against US dollar, volatile external financial markets, rising fuels prices and uncertain political environment are some of the risks that could hamper growth.
These developments could affect Bhutanese economy though the external sector and service sector. Current assessment of the baseline growth forecast indicates modest growth of 5.4 percent in the medium term and 5.1 percent on an average for the 12th Five Year Plan ( FYP).
The report also states that slowdown in growth is projected mainly on account of shifting of commercial operation date of Punatshangchhu- I and II to the next plan besides the delay in commissioning of Mangdechhu hydro project (MHP) and Nikachhu HP.
“Higher growth of six percent and above could be achieved in the 12th FYP by expediting the commissioning of Punatshangchhu– II and starting the construction of Sunkosh hydro power project within the plan period besides attracting
additional Foreign Direct Investment ( FDI), public private partnership ( PPP) and implementing major fiscal reforms such as GST and others,” stated the report.
The report further states that future growth is anticipated from service sector with an average growth of 8.2 percent driven by strong domestic demand and growth in financial services while the industry and agriculture sectors are projected to grow at three percent on an average.
The report states that manufacturing sector is also projected to contribute to growth based on its actual performance in recent past.
In terms of sectors share in the 12th FYP, the report states that service sector is projected to lead with 48 percent, followed by industry at 41 percent, and agriculture at 11 percent.
Over the last two years, prices have remained stable as indicated by slower increase in Consumer Price Index ( CPI). Overall CPI, infla- tion in FY 2017- 18 was 3.6 percent, lower by 0.7 percent points compare to the previous fiscal year, stated the report.
“Increase in food prices by 6.5 percent and non- food prices by 1.8 percent contributed to the inflation in FY 201718. Import inflation remained higher than domestic inflation at 3.9 percent contributed by higher import food prices than non- food prices in FY 2017- 18.”
In comparison to previous fiscal year, marginal increase was noted for import inflation while the domestic inflation reduced by two percent.
Based on recent monthly CPI data from the National Statistics Bureau ( NSB), food prices are expected to remain higher than nonfood prices. As the trend in food and commodity, prices indicate are gradual rise along with the increase in fuel prices in the global market, CPI inflation in the country is projected to range within five to six percent in the medium term.
While, agriculture sector continue to be the major employment provider in the economy employing about 57.2 percent of the labour force followed by service sector with 34.2 percent and industry sector employing only 8.7 percent. “Unemployment rate in 2016 was 2.1 percent which is an improvement of 0.4 percent points from 2015.” However, youth unemployment increased to 13.2 percent in 2016, stated the report.