Better outlook for Bhutan economy in 2021: Fitch

Bhutan's real GDP is likely to grow by 4.7 per cent in 2021, rebounding from a 3.5 per cent contraction in 2020, Fitch Solutions said on Tuesday.

Bhutan's real GDP is likely to grow by 4.7 per cent in 2021, rebounding from a 3.5 per cent contraction in 2020, Fitch Solutions said on Tuesday. An almost complete absence of tourism activity for 2020 crippled hospitality and transport services.

Manufacturing and construction were also affected during 2020 from disruptions to critical inputs, temporary export restrictions, foreign labour shortages (due to lockdowns in India), and weaker external demand. However, a rise in hydropower output and exports due to the on-streaming of 720 megawatt Mangdechhu hydropower project likely cushioned the economy's decline.

"We expect somewhat of a reversal of the above trends in 2021, with tourism-related services, manufacturing and construction to aid the recovery," said Fitch. "Hydropower output will stabilise without commissioning of another hydropower project, implying low growth. A weak pipeline of public infrastructure projects also suggests a limited rebound in construction despite an easing of foreign labour constraints."

Fitch said Bhutan remains effectively closed to inbound tourism as of January 2021 since the country's decision to shut its borders in March 2020 due to the Covid-19 pandemic. This has resulted in about an 88 per cent fall in tourist arrivals and revenue in 2020. "With a global vaccine rollout underway, we currently assume that Bhutan will reopen its borders to international tourists by H2 2021, and this should accordingly drive increased activity for services, particularly hotels and restaurants, transport, and retail trade."

These three categories account for a combined 23 per cent of GDP. Meanwhile, ongoing economic recovery in India will also support Bhutan's exports manufacturing sector, while easier movement restrictions smooth the flow of critical inputs.

India is Bhutan's largest trading partner, accounting for 80 per cent of exports and 84 per cent of imports. (ANI)

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