Country Report Bhutan February 2009

Outlook for 2009-10

The country's fifth king, Jigme Khesar Namgyal Wangchuck, will oversee the country's adjustment to the monumental political change undertaken in 2007-08, when the country completed the transition from absolute monarchy to parliamentary democracy. However, political change will not be consolidated in a completely secure domestic environment, as there are continuing concerns about links between Nepali Maoists and refugees from Bhutan living in Nepal. India will continue to wield enormous influence, although a new friendship treaty between the two countries allows for a looser form of association than in the past. Bhutan will not be unaffected by the global economic downturn, and sectors like steel and tourism will face significant challenges. Nevertheless, the contribution of the Tala hydroelectric plant will enable sustained real GDP growth, and will also improve the country's current-account position.

The political scene

Several issues relating to parliamentary procedures remain unresolved, and in January the two houses of parliament attempted to position themselves so as to maximise their influence. The National Assembly (the lower house) passed the Police Act in January. By January 2009 over 8,000 Bhutanese refugees living in southern Nepal had been resettled in third countries (primarily the US).

Economic policy

The much-vaunted Gross National Happiness Index was officially launched in November. The government is drafting a formal industrial policy in a bid to diversify the economy beyond hydroelectricity exports and foreign aid. In January the government gave the department of geology and mines sole authority for management of the country's sand and stone quarries, reducing the remit of the forest department.

The domestic economy

The sharp drop in commodity prices has negatively affected Bhutan's steel companies, but the government has resisted entreaties to bail them out. In contrast, it has agreed to several relief measures for the tourism sector, including the postponement of tariff increases and the lowering of the royalty rate that must be paid to the government. In January 2009 the employment service centre in Phuentsholing (a town on the border with India) said that foreign workers were still dominating jobs in Bhutans border towns.

Foreign trade and payments

India has committed Nu34bn (US$693.6m) in aid to Bhutan's tenth five-year plan (2008-13), as well as assistance to several non-plan projects. In October the Austrian government committed 500,000 (US$648,000) in aid.

This report covers the following industry codes:
SIC Code: 70
NAICS Code: 72