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Economic Resurgence, A Closer Look at Bhutanโ€™s 2022 Economic Growth and Inflation Trends

โ€ฆ๐’”๐’•๐’“๐’๐’๐’ˆ ๐’“๐’†๐’„๐’๐’—๐’†๐’“๐’š ๐’‚๐’๐’… ๐’๐’Š๐’๐’ˆ๐’†๐’“๐’Š๐’๐’ˆ ๐‘ฐ๐’๐’‡๐’๐’‚๐’•๐’Š๐’๐’, ๐‘ฉ๐’‰๐’–๐’•๐’‚๐’’๐’” ๐’†๐’„๐’๐’๐’๐’Ž๐’Š๐’„ ๐’๐’‚๐’๐’…๐’”๐’„๐’‚๐’‘๐’† ๐’Š๐’ 2022 ๐’‚๐’๐’… ๐’ƒ๐’†๐’š๐’๐’๐’…

Phurpa Wangmo

In 2022, Bhutan’s economy staged steady resurgence, recording a growth rate of 5.2 percent. This marked a remarkable recovery from the severe 10.2 percent contraction witnessed during the challenging year of 2020, plagued by the pandemic. The growth story of 2022 was not only about numbers but also about the tangible impact it had on the nation’s living standards, prosperity, and general welfare.

One of the notable indicators of this economic resurgence was the rise in the Gross Domestic Product (GDP) per capita, a measure of the well-being of the citizens. In 2022, this figure ascended to USD 3,833, a significant leap from USD 3,660 in 2021, reflecting an improvement in the overall quality of life. Similarly, the Gross National Income (GNI) per capita saw a substantial growth of 5.7 percent in 2022. This was primarily attributed to an increase in the inflow of primary income compared to the previous year.

The revival of economic activities and the restoration of stability within supply chains contributed to a broad-based recovery observed across most economic sectors.

The service sector stood out, displaying remarkable growth by expanding 6.6 percent in 2022. Notably, it remained the largest contributor to the overall economic growth, accounting for a significant 53.5 percent of the GDP. The resurgence in hotel and restaurant activities, along with the resumption of regular business operations in wholesale and retail trade, were pivotal drivers behind this sector’s impressive growth. Furthermore, there is anticipation of improved tourism arrivals in 2023, aligning with the gradual recovery of the global tourism industry, which is expected to have a positive cascading effect across related sectors.

According to the State of the Nation’s report in 2023, the industry sector’s recovery can be predominantly attributed to the growth witnessed in the construction and manufacturing industries. This sector recorded a growth rate of 5.6 percent in 2022, a noteworthy improvement compared to the 3.9 percent in the previous year. The industry sector’s contribution to GDP growth is estimated at 1.8 percentage points.

In contrast, the agricultural sector experienced a setback with a contraction of 1.2 percent, primarily linked to unfavorable harvest outcomes and reduced livestock production.

The year 2022 saw the overall economy of Bhutan expanding, marked by a 0.8 percentage point increase compared to the previous year. This growth was underpinned by strong domestic demand and in harmony with the global economic recovery.

On the demand side of the economy, final consumption expenditure exhibited a growth rate of 3.1 percent, primarily driven by a substantial 5.5 percent growth in household final consumption expenditure. Additionally, gross domestic capital formation showed robust growth, increasing by 28.8 percent, a significant improvement compared to the 19.9 percent growth observed in 2021.

However, on the trade front, there were fluctuations. While the export of goods and services declined by 8.1 percent, the import of goods and services surged significantly by 17.1 percent in 2022. Government expenditure for the fiscal year 2021-22 amounted to Nu. 69.39 billion, marking a 1.4 percent decline from the previous fiscal year. It accounted for 37 percent of the GDP. Notably, current expenditure stood at Nu. 34.4 billion, reflecting a 20 percent decline from the previous year, primarily due to expenditure rationalization measures.

Nevertheless, it’s important to acknowledge that there are persistent downside risks on the horizon, stemming from both external and domestic markets. These risks are driven by soaring energy and food prices, as well as financial sector volatility. In the medium term, economic growth is expected to follow a positive trajectory, supported by multiple transformative shifts, such as the commissioning of various hydro power projects and the gradual recovery of the tourism sector.

Shifting our focus to inflation trends, while the overall annual average inflation rate decreased from 7.4 percent in 2021 to 5.6 percent in 2022, it remained above pre-pandemic levels of approximately 2.7 percent. The moderation in the rate of inflation, especially regarding food prices, was notable. This was largely due to a slower rate of increase in food items, which stood at about 3.9 percent compared to the steep 9.6 percent increase in 2021. Food prices contributed to approximately 34 percent of the overall inflation, with non-food items contributing to the remaining 66 percent.
Fast forwarding to July 2023, we observe that the prices of goods and commodities have increased by 4.0 percent compared to the same period the previous year. This increase was observed in both food and non-food prices, with the Consumer Price Index (CPI) showing month-on-month growth. The short to medium term is expected to witness the persistence of inflationary pressure, primarily due to sudden spikes in fuel prices, attributed to supply constraints and geopolitical tensions on the global stage.

Bhutan’s economic recovery in 2022 was not only substantial but also indicative of the nation’s resilience and adept government policies in addressing the challenges brought on by the pandemic. The management of inflation and navigation of external economic risks are paramount considerations for Bhutan’s continued economic development.

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