core sector communique

The Prime Minister Jigme Yoser Thinley, in his first State of the Nation address to the Parliament in June 2009 reaffirmed the government’s commitment to maximizing Gross National Happiness for its citizens.

Gross National Happiness

The Royal Government considers that creating an atmosphere where every individual can seek and achieve happiness as a major goal. Accordingly, the country bases its development vision on a unique concept of maximizing Gross National Happiness (GNH).

Global Economic Crisis

The economy was largely isolated from the global economic crisis, and is showing signs of recovering from limited negative impacts on tourism and the steel industry. However, the country remains vulnerable to macroeconomic volatility on account of its dependence on hydropower revenues and external assistance. The government while citing good socio-economic performance during the global economic crisis, it has recognized the need to further strengthen the fundamentals of the Bhutanese economy.

Growth and Fiscal Deficit

Growth is projected to slowdown from 9% during the 9th Five-Year Plan (2002-2007) to below 8% during the 10th Five-Year Plan (FYP) (2008-2013). However, government’s ambitious plans for hydropower development are expected to yield dividends in growth and revenue beyond the 10th FYP.

The fiscal deficit is expected to average less than 5% during the 10th FYP, but this depends critically on hydropower revenues and external assistance.

Bhutan’s debt is projected to increase significantly during the 10th FYP, due largely to hydropower development loans that are expected to be serviced through hydropower receipts in the long run.

Cautious monetary policies have helped to lower inflation and domestic credit growth. Though growth in credit to the private sector is high, access to finance is cited as the main investment barrier for private sector development. Growing youth unemployment and shortage of skilled workers for the industries and services sectors are important policy concerns.

Hydropower

Hydropower could be a major engine of growth and public revenue during and beyond the 10th FYP. Bhutan has limited domestic demand, and surplus power is exported to India. The country has the potential to develop 23,760 MW of hydropower, of which only 5% has been exploited so far.

In the next 5 years the installed hydropower generation capacity is targeted to go up from 1,488 MW in 2007 to 1,602 MW in 2013. In addition, the government is planning to add 10,000 MW of capacity by 2020. To this end, Bhutan and India have agreed on a list of 10 hydropower projects to be developed.