COUNTRY BACKGROUND - Gross National Happiness Commission

CHAPTER 7
ECONOMIC OUTLOOKECONOMIC OUTLOOK
I. IntroductionI. Introduction
7.1 This Chapter examines Bhutan's long term economic opportunities and, based on anticipated major
investments, provides a forecast of economic growth in the 7FYP. Government expenditure and revenue
projections are also outlined, with the resulting deficit and financing requirements detailed for the Plan period.
II. Long Term OpportunitiesII. Long Term Opportunities
7.2 Economic development in Bhutan is constrained by those factors described in Chapter 1: mountainous terrain;
small and scattered population; limited domestic demand and lack of skilled manpower. Considerable progress has
been made in overcoming these constraints since the 1960s, as described in Chapter 2, but these factors continue to
limit the potential for economic growth. Opportunities are further shaped by Bhutan's proximity to, and special
relationship with, the massive Indian economy. This gives access to large potential markets, but also largely
determines the terms of Bhutan's economic relationships with third countries. Towards the end of 6FYP, India
began to adopt a more open economic strategy, and this is likely to make Bhutan's economic relationships with
third countries more straightforward without sacrificing the advantages of open access to Indian markets.
7.3 Based on the constraints discussed above and the existence of abundant natural resources, Bhutan's long term
economic opportunities seem to lie in the development of activities which are based on the sustainable exploitation
of the country's natural resources. The area with the most obvious potential is the further development of
hydroelectric power for export. Although power generation will produce additional Government revenues, the
development of other sectors will be required to provide incomes for the majority of the population. The
agricultural sector will continue to provide incomes for the majority of Bhutanese and efforts will be made to
encourage increases in productivity of arable, livestock and forestry output, with emphasis on the sustainability of
these increases as described in Chapter 4.
7.4 However, it is unlikely that the agricultural sector would be able to generate significant increases in output to
maintain the high levels of growth achieved in the 6FYP, thus other sectors will need to be developed to provide for
economic growth. The industrial sector appears to hold potential, particularly in agro industries, such as wood and
food processing, essential oil production. Mineral based industries provided the main impetus for industrial growth
in the 6FYP and these will be further developed during the 7FYP, as outlined in Chapter 18 and 19. As the
industrial sector is at an early stage of development, Bhutan would find it difficult to compete with the established
industries in the region, particularly those industries based on low labour costs. As labour is scarce in most of
Bhutan, labour costs tend to be higher. The combination of high labour and transport costs, indicates that Bhutan
would have a comparative advantage in the production of high value quality goods for export.
III. Economic Forecasts for the 7FYPIII. Economic Forecasts for the 7FYP
7.5 Economic forecasting for the medium term is constrained by lack of data. Even if the relationships between
different parts of the economy were better known, they are likely to change rapidly in a small developing economy
like Bhutan's, so that it is not safe simply to extrapolate past trends. Because the economy is so small, a few large
projects can make a big difference to the outlook: not only the existence but the timing of such major investments
can be crucial. The economy may be greatly influenced by external factors; not least, by the levels of foreign aid
on which much of the financing of investment depends.
7.6 As noted in Chapter 2, economic growth during the 1980s comfortably exceeded the population growth rate.
However, a large part of the growth during the 1980s was due to the Chhukha Hydel Project. During the 7FYP
period, there will be preliminary work on more large power plants, but these will not come on stream until the late
1990s. Consequently, while the energy sector will be the major source of growth in the long term, its contribution
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