Country briefing note <download pdf file>
- The economy of Bhutan is heavily dependent on the production of hydroelectricity and exporting it to neighbouring India . Hydropower projects have boosted the construction sector. Revival of the tourism sector has also contributed to the expansion of the economy, as GDP grew by 8.5% in 2012 after expanding by 11.7% in 2011.
- Bhutan is currently formulating its eleventh five year plan for 2013-2018 to take effect in July 2013. The plan is aimed at increasing the country's self-reliance, which entails a strategy that focuses on sustainable development so that economic growth is not achieved at the expense of environmental degradation and “gross national happiness” is maximized. This will be attained by concentrating on 16 different “key result areas”, including, among others, economic growth and food security, and on vulnerable groups.
- The economy of Bhutan will continue to grow at robust rates in coming years due to the expanding hydropower sector.
High inflation persists
- 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 among them. Inflation in Bhutan rose to 13.5% in 2012 from 8.3% in 2011, following high inflation in India, which supplies about three quarters of the country's imports.
Budget deficit rises
- The budget deficit rose to 4.4% of GDP in 2012 from 2.3% in 2011.
Current account deficit remains large
- The country has been experiencing a double-digit current account deficit, mainly due to imports related to hydropower generation. However, financing the deficit with funds from India and other development partners has been adequate.
- In order to realize its development potential, countries in South Asia will have to overcome a number of development challenges, including large concentrations of poverty and hunger, rising inequality, poor levels of human development, wide infrastructure gaps, lack of a diversified base for high value added products and exports, widespread food and energy insecurity and high risk of disasters.
- The subregion's economic, social and environmental priorities must be balanced in favour of eradicating extreme poverty and hunger. Today, South Asia remains home to the world's largest concentrations of people living in poverty and hunger, and people without access to basic sanitation and electricity. The subregion is also characterized by having the world's highest levels of child and maternal mortality. Progress on the health, nutrition and sanitation-related Millennium Development Goals and related targets has been stalled because of the large inequalities and disparities within populations that persist in the subregion.
- This subregion faces the dual challenge of raising productivity to ensure that incomes are rising and poverty is falling, and creating enough jobs for a growing working-age population, which is expanding by about 2% per annum. With almost 60% of the population under the age of 30, Governments of countries in South Asia have to take advantage of this demographic bulge. Otherwise, the consequence can be social unrest, conflict and insecurity.
- South Asia must offer a way out of poverty and exclusion for its rapidly growing working-age population. Therefore, countries in the subregion should maximize growth through productive job creation and appropriate structural change to reduce poverty, hunger and inequalities. Countries in the subregion should also provide good-quality education, health, sanitation and other infrastructure to make the most of the youth bulge. In addition, a minimum social protection floor should be established that meets the basic needs of vulnerable populations.
- South Asia faces exponentially growing energy demand, and a number of energy challenges — energy poverty, lack of available supplies, poor energy infrastructure and transport facilities and environmental externalities. The subregion's energy deficits are particularly detrimental in terms of growth and poverty alleviation as parts of the subregion faces regular and sustained power outages. At the same time, the subregion must increase energy usage in order to maintain growth and development. Energy security, linked with energy availability, accessibility and affordability, is a paramount policy concern for countries in the subregion. The development of energy markets in South Asia, through the creation of regional energy grids and cross-country pipelines across the subregion as a part of the proposed Asian energy highway, could assist the subregion in promoting energy access and security.
- Strengthened regional cooperation can help solve a number of the challenges facing South Asia and can be an important development strategy to ensure a sustainable future for the subregion. Greater regional integration not only increases intraregional trade, but also promotes efficiency-seeking investment in the subregion's supply chain and production networks. This, in turn, creates more and better jobs in addition to building productive capacity, particularly in the subregion's least developed countries.
- Regional cooperation can play a pivotal role in crafting solutions to shared vulnerabilities and helping ensure food and energy security, as well as reducing the subregion's vulnerability to natural disasters. Finally, better connectivity, across the subregion and beyond, can help leverage the subregion's strategic location at the crossroads of Asia and the Pacific to re-emerge as the hub of East-West trade that it once was.