Bhutan Navigates Economic Challenges Amidst Global Developments
In tandem with global economic shifts, Bhutan finds itself at a crossroads marked by uncertainties stemming from climate change and the digital divide. The latest update by the Macroeconomic Framework Coordination & Technical Committee reveals a downward trajectory in the domestic economic growth of the country.
According to the Royal Monetary Authority (RMA) annual report – indicates a decrease in economic growth from 5.2% in 2022 to 3.9% in 2023, primarily attributed to a downturn in the construction sector. Despite robust performances in Hotels & Restaurants, Construction, and Trade driving a growth rate of 5.2% in 2022, the agricultural sector experienced a contraction of 1.2%, mainly due to sluggish growth in crop cultivation.
The employment in Bhutan reflects a decline in the agriculture sector’s share, with both employment and Gross Value Addition decreasing. Policy measures such as skills development plans and the reopening of the tourism industry are anticipated to address the rising unemployment rate, reaching 5% in 2023.
On the economic front, Bhutan faces challenges in maintaining domestic price stability, exacerbated by inflationary pressures expected to range from 5 to 6%. The fiscal balance, while sustainable in FY 2022/23, is projected to deteriorate in the coming fiscal year due to increased borrowings, leading to higher fiscal vulnerabilities.
Persistent trade deficits remain a concern for Bhutan’s external sector, with a positive outlook projected for the medium term. The government’s response includes revising the Cash Reserve Ratio and increasing incentives for inward remittances to manage external reserves efficiently.
The financial sector, crucial for supporting Bhutan’s economy, demonstrated resilience with effective monitoring and supervision. Non-performing loans decreased, and total deposits with commercial banks witnessed a significant increase. The focus on IT adoption in the financial sector, including QR and mobile payments, is steering Bhutan towards a cash-lite economy.
However, Bhutan acknowledges the challenges posed by the global economic and political landscape. The Royal Monetary Authority and financial institutions remain committed to navigating these challenges through collaborative efforts and innovative technologies.
By Kinley Yonten
