Bhutan’s Economy Faces Challenges Amid COVID-19 Pandemic

Kathmandu - Bhutan’s economy has been experiencing a mixed bag of growth and challenges in recent years. According to the Asian Development Bank, the country’s GDP growth rate was 5.5 per cent in 2019, higher than the previous year. However, the bank forecasts that economic growth will contract by 3.4 per cent in 2021 due to the COVID-19 pandemic.

Impact of the Pandemic

The pandemic has introduced measures such as nationwide lockdowns, which have impacted the country’s economy. Despite this, the bank expects a moderate recovery of 3.7 per cent in 2022 thanks to strong policy responses.

Economic Drivers and Challenges

Bhutan’s economy is driven by hydropower construction, supportive fiscal and monetary policies, and domestic services. The Global Competitiveness Report 2017-2018 ranks Bhutan 82 out of 137 countries with an average total score of 4.1 points, indicating that it is transitioning from a factor-driven economy to an efficiency-driven economy.

However, the country faces challenges in upgrading its information and communications technology (ICT) infrastructure and increasing ICT use. Access to finance, restrictive labor regulations, and inadequate supply of infrastructure are also problematic factors for doing business in Bhutan.

Private Sector Development

The private sector in Bhutan is still in its early stages of development, with small-scale enterprises dominating the trade, industry, and services sectors. According to Transparency International, regulatory quality has improved, but the country still lags behind many others in terms of governance.

Poverty and Inequality

The poverty rate in Bhutan has dropped significantly in recent years, particularly in urban areas. However, rural poverty remains a significant issue, with levels of inequality persisting. The World Bank notes that the pandemic is expected to have caused a small increase in poverty in 2020 due to high food price inflation and disruptions in agricultural activities.

Rural Population Shielded

The World Bank expects Bhutan’s rural population, which relies heavily on subsistence-level farming, to be largely shielded from labor market shocks caused by the pandemic. However, disruptions in agricultural production, transportation, and sale may impact the income of some farmers who are more commercially oriented.

Future Outlook

Overall, while Bhutan’s economy faces challenges due to the COVID-19 pandemic, it is expected to recover moderately in the future with strong policy responses. The country still has much work to do to address poverty, inequality, and other development issues.