THIMPHU, BHUTAN (29 April 2021) — Economic growth in Bhutan is forecast to contract by 3.4% this fiscal year (FY) 2021 from 0.9% in FY2020 on account of stringent pandemic containment measures, including two prolonged nationwide lockdowns that stifled economic activity across sectors, according to a new report by the Asian Development Bank (ADB).

The Asian Development Outlook (ADO) 2021, ADB’s flagship annual economic publication, says economic growth is expected to recover moderately to 3.7% in FY2022 with strong policy responses to the coronavirus disease (COVID-19) pandemic, including the country’s vaccination drive.

“Economic recovery will be backed by swift and strong policy response by the government, including the nationwide vaccination drive that started on 27 March 2021 with over 90% of population receiving the first dose in a week, restoring mobility and economic activity; strong government investment spending; and global economic recovery, reviving tourism albeit moderately,” said ADB Officer-in-Charge for Bhutan Atsushi Kaneko. “Inflation is expected to remain elevated on higher prices for food and transportation. Risks to the growth outlook tilt to the downside, particularly slower than expected revival in tourism; renewed virus outbreaks with new variants; weaker than expected recovery in India; financial stress caused by a worsening nonperforming loan ratio; and, most critically, slow implementation of government investment projects.”

Inflation is expected to rise from 3.0% in FY2020 to 6.4% in FY2021 due to supply chain disruption and panic buying. However, inflation is forecast to ease to 5.3% in FY2022 as prices are expected to trend lower in India and domestic conditions improve.

The current account deficit will moderate to 7.7% of gross domestic product (GDP) in FY2021 as imports contract on falling domestic demand. In FY2022, imports are forecast to revive on recovery in investment and private consumption, boosting the current account deficit to 10.4% of GDP.

Resolving nonperforming loans (NPL) to strengthen financial stability and contain their impact on the broader financial system remains critical, according to the ADB report. These include granting more autonomy to financial institutions in how they restructure loans, and capital strengthening through measures to improve credit underwriting at both banks and nonbank financial institutions (NBFI) and the introduction of NBFI stress-testing for credit exposure.

ADB has been supporting Bhutan since 1982, concentrating its efforts on programs and projects in energy, transport, finance, and urban development. ADB has committed loans totaling $584.06 million, grants of $269.22 million, and technical assistance worth $57.23 million for Bhutan. Cumulative loan and grant disbursements to Bhutan amount to $728.5 million. In 2020, ADB responded swiftly to assist with the government’s most urgent pandemic needs through a combination of program loan, investment projects, grants, and technical assistance worth $108.9 million. Overall assistance aims to help promote reforms, support inclusive growth, enhance domestic resource mobilization, and environmental sustainability.

ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. Established in 1966, it is owned by 68 members—49 from the region.

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