Inflation exected to drop to 5.2 percent
Thukten Zangpo
The Bhutanese economy was projected to rebound and grow at 3.7 percent in 2021 and 4.5 percent in 2022 with signs of an improved economy, the finance minister said, presenting the budget report for the fiscal year 2022-23 in the National Assembly on June 6.
Bhutan’s economy experienced the worst full-year recession of -10.1 percent in 2020 because of the Covid-19 pandemic which required strict public health measures that resulted in significant disruptions of economic activities.
Finance Minister Namgay Tshering said that the impact would have been much higher had it not been for the hydropower sector, which remained unaffected by the pandemic.
He said that economic activities began to resume in the first three months of last year, restoring mobility and leading to an increase in government spending.
He said that owing to improved trade and strong foreign and domestic demand, and growth in wholesale and retail commerce, the economy was projected to rebound and grow at 3.7 percent in 2021.
According to the budget report, the economy is projected to grow at 4.5 percent in 2022 with a cautious transition to Phase II on April 4, 2022, and further relaxation from May 2, 2022.
The projection is higher compared to the International Monetary Fund’s estimates of global growth of 3.6 percent.
However, Lyonpo said that when the economy was recovering, the global economic fallout of the Russia-Ukraine conflict continued to weigh heavily on the economy with increased energy and commodity prices.
Lyonpo said that the agriculture sector remained the silver lining of the economy, seeing a growth of 4.6 percent in 2020 during the pandemic with the implementation of various programs to boost agriculture and livestock production for food self-sufficiency, nutritional security, and income generation. The sector is projected to maintain growth at 3.3 percent and 2.3 percent in 2021 and 2022 respectively.
“As construction activities pick up with a surge in capital spending and relaxation in labor imports, the industry sector would grow at 4.9 percent and 4.1 percent in 2021 and 2022 respectively,” he said, adding that the sector saw a contraction of 13.1 percent in 2020.
The service sector, which includes tourism, finance, and government services, recorded negative growth of 6.9 percent in 2020 compared to positive growth of 13.2 percent in the previous year.
According to the budget report, the service sector is estimated to grow to 5 percent in 2022 with an easing of mobility restrictions and gradual opening up of the tourism sector.
Lyonpo said that trade saw an improvement with exports (excluding hydropower), increasing to an all-time high at 61 percent in 2021 and imports recorded an increase of almost 36 percent.
Both imports and exports are expected to grow further.
Despite the economic growth, Lyonpo said the rise in inflation in 2021 was largely due to supply-side bottlenecks and a stronger than anticipated rebound of demand, and an increase in both food and non-food prices.
“Food prices contributed to about 60 percent and non-food contributed to 40 percent of the overall inflation rate in 2021,” he said, adding that the overall inflation peaked at 7.4 percent, an increase of 1.7 percentage points compared to 5.6 percent from the previous year.
The annual inflation is estimated to fall to 5.2 percent in 2022 and 3.5 percent in 2023, returning to its pre-pandemic level if supply-side disruptions dissipate and global food and energy prices stabilise.
On employment, Lyonpo said that the unemployment rate rose to an all-time high of 5 percent, equivalent to 16,660 persons in 2020.
However, he added that the economic recovery and implementation of numerous skilling programmes slightly improved to 4.8 percent (16,254 persons) in 2021.
“The speed of employment recovery will be slower than anticipated and would take a minimum of three years to reach a pre-pandemic level,” Lyonpo said.