Eco­nomic growth hits al­most 8% in 2016

Business Bhutan - - Front Page - Dechen Dolkar from Thim­phu

Bhutan recorded an eco­nomic growth of 7.99% in 2016, the high­est in the SAARC re­gion, ac­cord­ing to the Royal Mone­tary Au­thor­ity (RMA)’s an­nual re­port re­leased re­cently.

It was an­chored by high do­mes­tic de­mand mainly through govern­ment ex­pen­di­ture, in par­tic­u­lar, in­creased cap­i­tal in­vest­ment on in­fra­struc­ture. How­ever, the value of goods and ser­vices con­sumed by house­holds de­clined by 2.6% as well as pri­vate con­struc­tion ow­ing to wind­ing up of hy­dropower con­struc­tion ac­tiv­i­ties.

In the com­ing fi­nan­cial year (FY) 201718, the econ­omy is ex­pected to main­tain its growth tra­jec­tory sup­ported by sus­tained govern­ment in­vest­ment, com­mis­sion­ing of Mangdechhu Hy­dro­elec­tric Project

Au­thor­ity (MHPA), af­ford­able fi­nance for pri­vate in­vest­ment and mod­est in­fla­tion and sta­ble ex­ter­nal en­vi­ron­ment.

In its re­port, the RMA also stated that on the sup­ply side, ex­pan­sion con­tin­ued to be led by the con­struc­tion and ser­vice sec­tor, driven by govern­ment in­vest­ment and do­mes­tic credit.

With the pickup in plan ac­tiv­i­ties, fis­cal deficit in the FY 2016-17 in­creased to 4.06% of Gross Do­mes­tic Prod­uct (GDP) at Nu 6.49bn from 1.10% of GDP worth Nu 1.56bn in FY 2015-16. Cap­i­tal ex­pen­di­ture ex­panded by 40.4%, mainly be­cause of in­fra­struc­ture spend­ing for roads, build­ings, bridges, ir­ri­ga­tion, and wa­ter sup­ply.

In­fla­tion hit a record low of 3.22% in 2016 fol­low­ing the fall in in­fla­tion in In­dia and fall in oil and com­mod­ity prices in the global mar­ket.

Credit to the pri­vate sec­tor in­creased by 15.4% fol­low­ing the soft­en­ing of in­ter­est rate as a re­sult of the im­ple­men­ta­tion of the min­i­mum lend­ing rate.

The cur­rent ac­count deficit im­proved from 33.13% of GDP in FY 201516 to 24.44% of GDP on ac­count of fall in pri­vate con­sump­tion and hy­drore­lated im­ports as well as growth in ex­ports by 12.45% in FY 2016-17.

Due to fall in non­hy­dro debt, the ex­ter­nal debt po­si­tion im­proved from 118.6% in FY 2015-16 to 108.64% of GDP in FY 2016-17. As a re­sult, gross in­ter­na­tional re­serves stood at USD 1,106.72mn, equiv­a­lent to 10.22 months of to­tal im­ports cov­er­age.

“Gross fi­nan­cial sav­ings in real terms also im­proved as a re­sult of low in­fla­tion ac­com­pa­nied by de­creased con­sump­tion de­mand. Improvements in the cur­rent ac­count balance and pos­i­tive net in­flows, have also con­trib­uted to strong gross in­ter­na­tional re­serve po­si­tion,” states the re­port.

Ac­cord­ing to the re­port, the fis­cal front, fis­cal con­sol­i­da­tion and buoy­ant busi­ness op­ti­mism pro­vide op­por­tu­ni­ties for pro­duc­tive cap­i­tal in­vest­ment in order to fur­ther ac­cel­er­ate growth.

Pol­icy at­ten­tion in 201617 shifted to ad­dress­ing struc­tural con­straints in boost­ing the sup­ply side dy­nam­ics. Mone­tary pol­icy re­mained ac­com­moda­tive with change in in­ter­est rate pol­icy re­sult­ing in a gen­eral soft­en­ing of in­ter­est rate and in­creased em­pha­sis on fi­nan­cial in­clu­sion.

The re­port also states that de­spite strong eco­nomic growth, the econ­omy faces down­side risks with a per­sis­tently high cur­rent ac­count deficit, high pub­lic debt and youth unem­ploy­ment. “Lower pro­duc­tiv­ity in the agri­cul­ture sec­tor which en­gages more than 60% of our pop­u­la­tion also war­rants pol­icy in­ter­ven­tions.”

It is ex­pected that higher bud­get ap­pro­pri­a­tion for the fi­nal year of the 11th five-year plan will con­tinue to sus­tain do­mes­tic de­mand, fol­lowed by im­ple­men­ta­tion of fis­cal in­cen­tives while the re­vised eco­nomic devel­op­ment pol­icy 2016 will stim­u­late eco­nomic ac­tiv­i­ties.

With de­clin­ing of hy­dropower in­vest­ment, the cur­rent ac­count deficit is also ex­pected to fur­ther im­prove over the medium term. Sim­i­larly, gross in­ter­na­tional re­serves is pro­jected to ex­pand, equiv­a­lent to more than one year of to­tal im­ports cov­er­age. The re­port states that given the size and im­por­tance of hy­dropower in econ­omy, fur­ther de­lays in the com­mis­sion­ing of up­com­ing pro­jects will have sig­nif­i­cant im­pact on macroe­co­nomic prospects. It is pro­jected that con­stant ex­pan­sion in do­mes­tic credit, largely for un­pro­duc­tive sec­tors such as hous­ing and per­sonal con­sump­tion may put fi­nan­cial sec­tor at higher risk and in­crease ex­ter­nal im­bal­ances. The im­ple­men­ta­tion of Goods and Ser­vices Tax in In­dia will neg­a­tively im­pact the terms of trade, weak­en­ing ex­port com­pet­i­tive­ness.

Ef­fec­tive do­mes­tic rev­enue mo­bi­liza­tion and ex­pen­di­ture ra­tio­nal­iza­tion over the medium term will be para­mount to off­set the im­pact of any fur­ther de­lays in com­mis­sion­ing of up­com­ing hy­dropower pro­jects. The re­port rec­om­mended that a proper govern­ment bor­row­ing plan be in­sti­tuted to min­i­mize the fu­ture cost of bor­row­ing in­clud­ing chan­nel­ing of credit to pro­duc­tive sec­tors through ef­fec­tive mone­tary pol­icy in­ter­ven­tions for sup­port­ing pro­duc­tive growth.

Newspapers in English

Newspapers from Bhutan

© PressReader. All rights reserved.