ADB downsizes govt's growth projection

As against the government projection to attain 10 percent growth rate, Asian Development Bank projects that Bhutan will attain only 6 percent growth rate in the fiscal year 2010 that will grow up to 6.5 percent in 2011.

Bhutan has a record of relatively strong growth that has cut poverty and advanced social development. It is based on prudent economic management and well-targeted donor support. Anchored by power, the medium-term outlook is bright, though rising unemployment, especially among young people, remains an economic and social concern.

The bank said, it is expected that during the 10th five-year plan (FY2009–FY2013), growth will continue to be strong, mainly driven by new hydropower developments including 10 hydropower projects, with three of the projects expected to start this year. Construction of these new power stations will sustain high economic growth.

With close trade links and the currency peg to the Indian rupee, inflation is projected at 5.0 percent for FY2010 and FY2011, largely following Indian inflation, the Asian Development Outlook 2010 mentions. While power exports to India will remain stable due to strong demand and long-term contracts, commodity exports will likely improve in view of that country’s expected strong expansion in the forecast period.

Recovery of service exports (mainly tourism) may take time, reflecting the economic recovery in industrial countries. The assumed relatively stable fuel import prices will, however, help restrain import growth. The current account is projected to be in balance in both FY2010 and FY2011.

Rising unemployment is a concern, as hydropower-led development employs few people and has small backward linkages. ADB says labor-intensive activities need to be developed. Tourism is one area where the private sector can expand. Depending on the development of tourism infrastructure and new tourism products, a more steady inflow of tourists throughout the year could be better promoted.

Private sector development will be a key focus in diversifying economic activity. Bottlenecks such as lack of skilled labor, difficult access to land, inadequate infrastructure, and limited financial sector outreach need to be addressed to facilitate economic diversification and growth.

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