Bhutan’s GDP growth plunges to three per cent in 2018

THIMPHU (Kuensel/ANN) – Since the onset of democracy, one peculiar trend in the economic growth rate has been the plunging GDP growth rate towards the end of the elected government’s tenure or the Five Year Plan.

This has transpired a blame game of sort during the former government’s tenure, with opposition blaming the government for inability to fetch a decent economic growth and government pushing the ball back to the opposition stating that it was not their doing.

This time again, the growth plunged despite forecast made by the International Monetary Fund (IMF) and World Bank, which are higher.

For instance in 2016, the IMF projected Bhutan to be one of the fastest-growing economies in 2017 and 2018. However, the latest figures from World Economic Outlook revealed a growth of 4.6 per cent in 2018 and 6.3 per cent in 2017.

In contradiction to these projections, the National Statistical Bureau (NSB), in its National Accounts statistics revealed the actual growth rate in 2018 was 3.03 per cent, lowest since 2013.

In the current government’s case, it took office from November 2018 and the capital budget for six months could not be passed. Local economists said that low growth rate at the end of the five-year period is normal because all funds of the five-year period would get exhausted and activities completed, save for few spill overs.

This is primarily because GDP growth in Bhutan is highly dependent on government investment, particularly in the hydropower sector and construction sector, which is closely associated with the former.

National Accounts statistics revealed that government construction accounted for 30.30 per cent, while the private and public corporations’ construction together accounted for 69.70 per cent of gross value added (GVA) of the construction sector in 2018. GVA is the value for the amount of goods and services that have been produced in a country, minus the cost of all inputs like taxes and subsidies.

The NSB, in the accounts statistics also stated that electricity and water sector’s growth dropped further in 2018 to negative (-14.89) from negative (-3.81) per cent in 2017.

The growth in the sector is largely dependent on the performance of the electricity sector, since it constitutes almost 99 per cent of the sector. Electricity generation observed a drop in growth by negative (-10.00) percent, further the distribution witnessed one of the highest fall in growth by negative (-30.14) per cent as compared to 2017. The drop was mainly due to completion of construction activities.

This proves that Bhutan’s economy continues to be dominated by hydropower. For instance, World Bank has revised its estimates downward to five per cent in FY 2019. This is due to maintenance and on-boarding delays on two major power plants (Tala and Mangdechhu).

Construction sector is dependent on government projects and banks, which are in turn linked to external funding and loan. Contractors have poured their grievances to the government over the slowdown, which has put some businesses to standstill.

The National Accounts Statistics attribute the lower growth in 2018 to deceleration in electricity, construction, general government spending and forestry and logging with negative growth of (-14.89) per cent, (-7.99) per cent, (-1.53) per cent and (-1.01) per cent respectively.

On the demand side, growth was underpinned by exports and consumption. Services remain the main driver of growth on the supply side, where wholesale and retail trade has emerged as the key contributing sub-sector.

However, trade deficit in 2018 increased by 13.03 per cent from the previous years.

Import of goods and services grew by 8.21 per cent in 2018 as compared to contraction in growth by (-0.95) per cent in 2017.