Bhutan Country Economic Memorandum, September 2024
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Washington, DC: World Bank
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Bhutan expects to double its
hydropower capacity over the next decade, which is expected
to have significant effects on the economy. Estimates using
a Computable General Equilibrium (CGE) model (the
business-as-usual (BAU) scenario) indicate that the
anticipated doubling of the hydropower generation capacity
is expected to result in higher growth. However, in keeping
with past experience, this growth will not be accompanied by
a diversification of the economy. The economy is expected to
shift towards electricity and closely related sectors. The
appreciation of the real exchange rate is expected to reduce
output in non-hydro tradable sectors, especially
tourism-related exports. This suggests that there is scope
to strengthen the government’s current approach for managing
and distributing hydropower revenues to support the
development of non-hydro sectors and address the negative
effects of the Dutch Disease. The availability of hydropower
rents provides the government with an opportunity to
actively support non-hydro productivity growth and generate
employment. This country economic memorandum (CEM)
identifies three key areas that require urgent policy focus
for achieving more robust and broad-based growth and
creating more and better jobs while bolstering climate
resilience: (I) facilitating economic diversification, (II)
enhancing agricultural productivity and crop
diversification, and (III) reforming the financial sector to
support economic diversification.
Palabras clave
HYDROPOWER CAPACITY, AGRICULTURAL PRODUCTIVITY, FINANCIAL SECTOR, CREDIT ALLOCATION