Bhutan
Date: 5 May 2011
The event will be held in Thimphu, Bhutan, with the participation of distinguished participants from academia, government, civil society, international organizations, and the press. The list of well known participants making opening remarks, presentations and commenting on the publication includes:
Daw Tenzin
Governor
Royal Monetary Authority of Bhutan
Bhutan
Claire Van der Vaeren
United Nations Resident Coordinator and
United Nations Development Programme Resident Representative
Bhutan
Country briefing note <download pdf file>
Growth remains strong
• In Bhutan , the completion of the Tala hydroelectric project in 2007 provided a boost to electricity exports to India and, consequently, to Government revenues. As a result, GDP growth had accelerated to a high of 17.9% in fiscal year 2007 but it returned to a more normal level of 4.7% and 6.7% in 2008 and 2009, respectively. Economic growth rose to 6.8% in 2010 with the start of construction work on two more large hydroelectric projects.
• Hydropower construction will continue to fuel growth in the medium-term. GDP is projected to grow at 7.2% in 2011
• A new economic development strategy finalized in March 2010 aims to diversify the economy, generate employment opportunities, promote exports and entrepreneurship, and enhance economic self-reliance. It also emphasizes sustainable development so that economic growth is not achieved at the cost of environmental degradation. GDP growth is expected to remain strong in 2011 around last year level.
Inflation is on the rise and a major challenge as food prices rise rapidly
• Inflation in Bhutan is closely linked to inflation in India because of the fixed exchange rates between the currencies of the two countries as well as the close economic ties between them. Inflation rose to 6.1% in 2010 from 3% in 2009. Inflation is expected to rise further in 2011.
Imports grew faster than exports
• Owing to a much stronger growth in imports than exports, trade and current account deficits widened in 2010. Sharp increase in imports resulted from import of machinery and other materials for the construction of hydropower stations.
Some major policy challenges
• High inflation rates in South Asia can compromise the achievement of sustained high growth rates. Containing inflationary pressures should therefore be a priority in the policy agendas of governments. Both demand- and supply-side factors have contributed to inflationary pressures in the subregion.
• High budget deficits in most countries have been instrumental in increasing liquidity and have generated price pressures in the face of supply constraints. There is an urgent need to bring budget deficits down to a more sustainable level. Some countries have been tightening monetary policy to alleviate pressures on inflation from the demand side but a combination of monetary, fiscal and other measures is needed to reduce price pressures.
• Repeated supply shocks pose a constant challenge to sustaining a low inflation regime. A more medium-term approach is needed in order to augment the supply of items of mass consumption by addressing structural supply constraints.
• Strong and sustained growth momentum is needed in the subregion to tackle the long-term problem of widespread poverty. Over the past few years, most countries have made progress in reducing poverty. Even today, however, at least one in every three persons in South Asia is classified as poor.
• The fight against poverty therefore must continue. Countries need to continue pursuing economic reforms to improve productivity, strengthen public institutions, improve economic governance, and build social safety nets to protect the more vulnerable segments of the population.
• To promote more inclusive growth, the provision of basic services such as health and education and the generation of ample employment opportunities should remain the principal priority in the policy agendas of all governments. Growth cannot be sustained in the long run if it is not inclusive.
• On the physical infrastructure side, one of the biggest challenges being faced by several countries is improving the electricity supply. Electricity supply disruptions are common in Bangladesh , Nepal and Pakistan . Electricity outages that last many hours have been affecting productivity in all sectors of these economies. Without addressing the severe electricity problem, the full potential of economic growth in some of these countries cannot be realized.
• Both short-term and long-term measures are needed to tackle the electricity problem. In the subregion, transmission and distribution losses vary from 20% to 40% in different countries and theft of electricity is a major problem. There is therefore a need for greater efficiency on both the generation and distribution sides. The promotion of regional cooperation in the energy sector can benefit the participating countries enormously.