Bhutan

Date: 10 May 2012

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:

Ms. Eden Dema
Deputy Governor
Royal Monetary Authority of Bhutan

Country briefing note      <download pdf file>

GDP continues to grow strongly

•  The economy of Bhutan is heavily dependent on the generation of hydroelectricity and its exports to neighbouring India .

•  After growing 11.8% in 2010, GDP expanded 5.4% in 2011, aided by hydropower projects, which boosted the construction sector, and the revival of the tourism sector.

•  The economy of Bhutan is likely to expand at robust rates in the coming years due to its expanding hydropower sector. GDP is projected to grow at 9.8% in 2012.

•  A new economic development strategy, finalized in March 2010, aims to diversify the economy, promote regional development, generate employment opportunities, promote exports and entrepreneurship, and enhance economic self-reliance.

•  The focus of the strategy is on sustainable development so that economic growth is not achieved at the expense of environmental degradation and ultimately “gross national happiness” is maximized.

Inflation remains high

•  Inflation in Bhutan is closely linked to inflation in India because of the fixed exchange rates between the currencies of these countries as well as the close economic ties between them.

•  Inflation in Bhutan rose to 8.3% in 2011 from 6.1% in 2010, tracking closely price developments in India , which supplies about three-quarters of the country imports.

Budget deficit need to be contained

•  Budget deficits are generally high in most countries in South Asia and there is a pressing need to contain them in order to prevent public debt from growing to unsustainable levels. Containing budget deficits would also support efforts to moderate inflationary pressures.

•  The budget deficit of Bhutan also remained high at 6.4% of GDP in 2011, justifying the need for the Government to take a tighter fiscal stance in order to sustain macroeconomic stability.

Large current account deficit due to imports related to hydropower generation

•  The current account deficit of Bhutan remained high, mainly due to imports related to hydropower generation. However, financing the deficit with funds from India and other development partners has been adequate.

Regional cooperation to tackle severe energy shortages in several South Asian countries

•  On the physical infrastructure side, several countries in South Asia, such as Bangladesh , Nepal and Pakistan , are facing severe electricity shortages.

•  To address energy shortages, the following measures must be undertaken urgently: setting up viable new power projects; minimizing transmission and distribution losses, including theft of electricity; and incentivizing the development of renewable energy resources.

•  Moreover, potential of countries, such as Bhutan , within the subregion to provide cheap electricity should be utilized and infrastructure should be set up to import energy from them.

•  Due to limited public resources, involvement of the private sector should be enhanced and public-private partnerships should be encouraged.

Widespread poverty continues to remain a major long-term development challenge

•  Widespread poverty continues to be a major challenge in South Asia despite some notable success in reducing it over time. Even today, at least one in every three persons in South Asia is classified as poor.

•  To fight against poverty, countries need to continue to implement 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 care and education, should remain the principal priority in the policy agendas of all governments. Generating ample employment opportunities are crucial for the poor to earn a livelihood.

 

Policy brief: Living with high commodity prices <download pdf file>