Tshering Dorji | Washington DC
The International Monetary Fund (IMF) has estimated Bhutan’s economic growth for 2019 at 5.5 percent, higher than the global growth forecast of three percent but below a few countries in the region, including Bangladesh, Nepal, India, Maldives and China.
The 2019 world economic outlook, which was launched in Washington DC on October 15, projects the lowest level of global economic growth to three percent since the crises in 2008. This is attributed to significant tariff increases between the United States and China that emerged from the trade war, hurting business sentiment and confidence globally.
While the fund has also estimated the global growth to pick up to 3.4 percent in 2020, Bhutan is projected to emerge as the second fastest-growing economy thumping a growth of 7.2 percent after Bangladesh.
Emerging and developing Asia, according to the IMF, remains the main engine of the world economy, dominated by India and China.
As per the IMF estimates, Bhutan has grown by an average of 8.4 percent between 2001 and 2010. In 2011, growth hit 9.7 percent, the highest in the decade. Between 1998 and 2007, the country’s economy grew at an average rate of 7.7 percent. Bhutan experienced an all time high growth of 10.8 percent in 2008.
In contradiction to various projections including the IMF and World Bank that expected Bhutan to be one of the fastest-growing economies in 2017 and 2018, the latest figures from World Economic Outlook revealed a growth of 4.6 percent in 2018 and 6.3 percent in 2017.
The earlier World Economic Outlook projected the country’s real GDP to grow at 8.4 percent in 2018. Even in 2017, the IMF projected Bhutan’s GDP growth at 8.6 percent.
The country’s current account balance is also estimated to improve to 9.6 percent in the red in 2020 and to the positive side in 2024.
However, the Fund’s chief economist, Gita Gopinath, said that growing disparities in the region was the concern. To reduce inequalities, she said that good governance was the key. “Policy makers should reintegrate investment and undo the trade barriers.”
At a time when the country is putting in efforts to attract foreign investments, the World Economic Outlook also revealed that financial flows to and from advanced economies have been much weaker since the global financial crisis. Other investment flows have also fallen sharply as global banks reduced the size of their balance sheets after dramatic expansion of their cross-border activities during the pre-crisis boom.
FDI abroad by advanced economies, as well as inward FDI, came to a virtual standstill.
In the emerging markets and low-income developing countries, public debt ratios are high and rising. The cost of servicing debt is also increasing, unlike in advanced economies where low interest rates have compensated for high debt levels. Some countries, including Bhutan, are vulnerable to exchange and interest rate shocks.
To cushion these risks, the Fund finds it important to strengthen fiscal policy. The director of the fiscal affairs department of the IMF, Vitor Gaspar, said that countries’ spending must be framed in the context of a comprehensive growth and development strategy.
Building tax capacity, he said, was necessary to enable a country to generate the extra revenue that underpins inclusive development. Climate change, he said, was one of the greatest factors that could undermine global financial stability.
“It is important to realise that current pledges under the Paris Agreement are not enough. They will limit global warming to 3°C. This is well above the safe level. To limit global warming to 2°C or less (the level deemed safe by scientists), finance ministers need to take further substantial fiscal policy actions,” he said.
The simplest way to illustrate the point is to focus on a single instrument, such as carbon taxation. If the carbon tax of USD75 per tonne were implemented globally, China and India would account for almost 70 percent of CO2 reductions among G20 economies.
The Fiscal Monitor that was also launched on October 16, presents several options involving, for example, labour tax cuts, payments to households and public investment.