Economy

Economy:

Economic growth may average 5-6 percent per annum over the medium term, supported by the services sector and higher net exports. In the services sector, the key drivers are likely to be hotels and restaurants, retail trade and transportation, underpinned by tourism. The fiscal deficit is projected to be around 3 percent of GDP over the medium term. Revenue growth will be supported by royalties from Mangdechhu, corporate income taxes, and the introduction of GST in 2020/21.

Spending is also likely to increase over the medium term as the government undertakes new public investment programs in line with the Twelfth Five Year Plan. Current expenditures are projected to increase with higher spending on the maintenance of hydropower plants and a possible increase in public sector wages. In spite of the continuing fiscal deficit, public debt as a share of GDP is projected to decline. This is because large amortization payments associated with hydropower investments begin with operationalization of the plants and are the main determinants of the debt trajectory.

The transition out of agricultural jobs will continue to be slow, due to challenges in accelerating private sector development. The tourism sector has expanded significantly in recent years, with the number of visitor arrivals increasing by 21.5 percent between 2016 and 2017 alone. Utilizing the growth potential of the tourism sector could help accelerate poverty reduction as tourism-related jobs tend to have low entry barriers and require low skills. Improving internal connectivity and further investing in tourism promotion and development could help create jobs and increase earnings in the sector.