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Bhutan: Bhutan Economy Profile 2012

2012/02/22

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Bhutan Economy Profile 2012

The economy, one of the world's smallest and least developed, is based on hydroelectricity, tourism, agriculture, and forestry. Rugged terrain makes it difficult to develop roads and other infrastructure. Despite this constraint, hydroelectricity and construction continue to be the two major industries of growth for the country. As these two economic sectors contribute to increased productivity, Bhutan's development prospects are positive. The Tala hydroelectric project, completed March 2007, has bolstered government revenue and exports, and will continue to do so for the next several years. In late 2009, Bhutan signed four memoranda of understanding (MOUs) with India to prepare four additional hydroelectric projects in Bhutan.

The Bhutanese Government expects the tourism sector to expand as well; however, restrictions on visitor numbers and minimum per-day spending requirements will impede rapid growth.

Bhutan's tenth five-year plan (2008-2013) focuses on ways to manage the country's new-found wealth with special emphasis on three development areas: rural, regional, and private-sector. India has pledged to support the plan and promised to double the amount of aid given to Bhutan in the previous five-year plan. The parliament had not yet finalized the tenth five-year plan as of October 2008; it intended to do so during the next session later in 2008.

Bhutan's economy has been on an upturn due to recent subregional economic cooperation efforts. Already this plan has strengthened the current trade relations with India, as well as opened an avenue of trade with Bangladesh. In May 2003, the Bilateral Free Trade Agreement between Bangladesh and Bhutan was re-signed. Bangladesh is Bhutan's second largest trade partner, after India. In January 2004, as a member of the South Asian Association for Regional Cooperation (SAARC), Bhutan also joined the South Asian Free Trade Agreement (SAFTA); Bhutan will host the SAARC summit in Thimphu in April 2010. In February 2004 Bhutan joined the Bangladesh, Indian, Myanmar, Singapore, and Thailand Economic Cooperation Forum (BIMSTEC). Bhutan has applied for membership in the World Trade Organization and is in the process of developing clear legal and regulatory systems designed to promote business development

 

The economy is dominated by the mining industry, with exports of alumina, gold, and oil accounting for about 85% of exports and 25% of government revenues, making the economy highly vulnerable to mineral price volatility. Prospects for local onshore oil production are good, and a drilling program is underway. Offshore oil drilling was given a boost in 2004 when the State Oil Company (Staatsolie) signed exploration agreements with several Western oil companies. Bidding on these new offshore blocks was completed in July 2006. The short-term economic outlook depends on the government's ability to control inflation and on the development of projects in the bauxite and gold mining sectors, though investment in these projects may slow with the tightening of global credit markets. Suriname has received aid for these projects from Netherlands, Belgium, and the European Development Fund. Suriname's economic prospects for the medium term will depend on continued commitment to responsible monetary and fiscal policies and to the introduction of structural reforms to liberalize markets and promote competition. In 2000, the government of Ronald VENETIAAN, returned to office and inherited an economy with inflation of over 100% and a growing fiscal deficit. He quickly implemented an austerity program, raised taxes, attempted to control spending, and tamed inflation. The VENETIAAN administration also has created a stabilization fund to insulate future revenue from commodity shocks. These economic policies are likely to remain in effect during VENETIAAN's third term。