20220523-IMF-Bhutan_2022_Article_IV_Consultation-Press_Release_Staff_Report_and_Statement_by_the_Executive_Director_for_Bhutan_70页_3mb

IMF Article IV Consultation: Bhutan (2022)

Summary

The IMF's 2022 Article IV consultation with Bhutan covered economic developments, risks, and policy recommendations. The mission found that:

Key Economic Developments

• Real GDP contracted by 2.4% in FY2019/20 and 3.7% in FY2020/21 due to pandemic containment measures significantly impacting sectors like transportation, construction, and tourism. Growth is projected at 4.4% in FY2021/22, supported by Bhutan's rapid vaccination campaign, higher electricity exports, ongoing fiscal support, and base effects. Inflation remains elevated due to high global commodity prices and supply disruptions.

Risks and Outlook

• Near-term risks are driven by pandemic uncertainties, inflation, and geopolitical tensions, including potential slowdowns in India and global trade.
• Medium-term growth is expected to be driven by recoveries in services, manufacturing, and hydropower, with hydropower capacity set to double, supporting growth and the current account balance.

Policy Recommendations

• Fiscal consolidation: Gradual medium-term consolidation, revenue broadening (Goods and Services Tax, direct tax reforms), and targeted support.
• Monetary normalization: Phased withdrawal of accommodative policy as recovery strengthens.
• Financial sector reforms: Address non-performing loans, implement risk-based supervision, and improve asset valuation.
• External sectors: Maintain exchange rate peg, increase rupee reserves, and accelerate hydropower exports.

Authorities' Response

Bhutan largely agreed with the IMF's assessment and emphasized climate resilience, tourism diversification, and infrastructure improvement.

Main Policy Recommendations Summary

• Fiscal consolidation
• Tax broadening
• Monetary normalization
• Financial sector reforms
• External sector management
• Structural reforms and diversification