Growth forecast for 2024 lowered amid challenges
Last Updated on December 25, 2024 6:22 am
Bhutan’s economic growth forecast for 2024 has been revised down to five percent, marking a 1.1 percent drop from earlier projections, primarily due to challenges in the domestic economy, including delays in Punatsangchhu-II Hydroelectric Project (PHPA-II) and a slow tourism recovery.
According to the Macroeconomic Situation report from the Ministry of Finance, one of the main reasons for the downgrade is the delay in the commissioning of the PHPA-II hydropower project, which is now expected to be completed in June 2025 instead of December 2024. This delay is expected to slow growth in the industrial sector, although the service sector continues to be the primary driver of the economy.
Tourism, a significant contributor to the economy, is expected to underperform in 2024, with visitor numbers failing to meet expectations. However, there is more optimism for 2025 with growth forecast to rise to 9.6 percent, driven by the completion of the PHPA-II project. Despite this, the growth is expected to slow to 6.6 percent in 2026 due to the base effect from 2025.
Meanwhile, the agricultural sector is struggling, with expected growth of only 1.5 percent in both 2024 and 2025. This is well below the seven percent annual growth target set in the 13th Plan. Despite modest improvements in forestry and livestock, agriculture’s overall performance remains slow. The government has launched several initiatives to support agriculture, including the Economic Stimulus Programme (ESP), which offers financial support to farmers, and the Concessional Credit Line (CCL) to improve access to loans. However, the impact of these measures has so far been limited with agricultural credit accounting for only 2.4 percent of total loans in August 2024.
Additionally, the Price Guarantee Scheme, aimed at stabilising prices and enhancing supply chains, is yet to yield significant impact.
Meanwhile, the industrial sector is expected to grow by 6.2 percent in 2024 and surge to 20.1 percent in 2025, buoyed by PHPA-II. Mining shows promise, with growth estimates of 7 percent in 2024 and 14 percent in 2025. But the manufacturing sector is expected to grow modestly, from 2 percent in 2024 to 4.6 percent in 2025, highlighting the need for job creation and expanded production capacity.
The service sector is expected to grow by 5.3 percent in 2024, driven by strong performances in retail, transport, and tourism. Hotels and restaurants, in particular, are forecast to see growth of over 20 percent. However, this growth is expected to slow in 2025 to 4.4 percent, largely due to lower wage growth in public administration.
The services sector’s performance remains highly dependent on the recovery of tourism, with the hope that the number of visitors will return to pre-pandemic levels by 2026.
The report stated that overall, the economy is projected to grow at an average of 7 percent over the next few years, slightly below the target of 8 percent set out in the 13th Plan (FYP) to reach a high-income status.
“Bhutan’s economy is mainly driven by capital accumulation mainly investments in hydropower and for the economy to diversify, resources needs to be mobilised to improve productivity in other sectors, particularly in manufacturing and value addition within the country which will generate meaningful employment,” an economist Pema Dorji (PhD) said.