The Bhutanese Leading the way.
With the government yet to respond to their earlier grievances, the private sector representatives proposed a host of solutions saying the economy is going through an unprecedented crisis
If the government and the central bank does not address the current liquidity crunch for another few months the whole economy is headed for a collapse with every citizen feeling the effects according to business leaders in the private sector.
With that message full on board, Private sector representatives at a meeting with financial institutions earlier this week said the government needs to understand the magnitude of the current economic situation which they failed to as yet.
“There is an economic crisis in the country, I don’t know if the government sees it, or anyone else sees it, but as a businessman, a citizen and head of this chamber I think this crisis needs to be solved,” Bhutan Chamber of Commerce and Industry (BCCI) president Tobgyal Dorji said Monday morning amidst a conference hall full with members of the private sector.
Since, it has been made clear that the commercial banks are suffering a severe liquidity crisis, the private sector among other issues, will request for external commercial borrowings (ECB) by banks, estimate their credit requirements in line with lending capacity of commercial banks, seek consideration on interest on business loans, propose banks to enhance export packaging credit (EPC), request central bank to consider usage of the foreign currency reserves and also relook into the foreign direct investment (FDI) policy to attract more external investors into the economy.
Financial Institutions clear doubts
Bankers admitted that there is a serious liquidity crunch in the sector which cannot be addressed neither by the huge corporate deposits since they are short-term nor the retail deposits that are scanty.
A businessman at the forum said “Lyonchhen said on TV that government hasn’t banned loans and said it’s the bank’s responsibility and decision. The blame has been passed from RMA to the government to the banks while the common people are affected”.
CEO of Bhutan National Bank Limited (BNBL) Kipchu Tshering said the economic growth achieved through credit from banks are proudly reflected in the government’s annual reports. “Now when there is a crisis within the banks, it’s not fair for the government to say that they have no hand in it and that it is the problem of central bank and commercial banks,” he added.
He said the growth rate and economic progress was achieved through huge lending by banks and the glory has been claimed by the government. He went on to say that the government can’t just avoid interfering when there is a problem and take credit when there is success. “If there is a problem, the government must solve it,” he said.
The BCCI secretary general Phub Tshering seconded the clarification and said it will be one of the vital points to be included in the proposal to the government. “The decision is theirs (government) but the banks and private sector needs to propose as one.”
DPNB CEO NK Arora said his bank continues to finance the builders whose loans has been sanctioned before construction began but is unable to lend to new clients and people who have started construction with their own capital and are now in need of loans for additional finance. “We will take up this issue to the RMA, if they can give some incentives to the banks for such category of persons as well”.
The BNBL CEO said RMA considered lifting the ban on vehicle loans if the government took fiscal measures such as increasing taxes but that didn’t happen in parliament so it’s still the same.
External Commercial Borrowings (ECB)
Commercial bank CEOs and some members of the private sector insisted the only way forward is to propose the government to consider ECB by the commercial banks or by any major individual borrower.
Talking to The Bhutanese the DPNB CEO said “the credit situation is alarming and is going to worsen and not improve for at least two to three years if it is not addressed because to meet the requirements of the private sector financing and to keep the economy going, we need at least an additional Nu 10bn every year”.
He said “We are short of liquidity. We have to borrow from outside through ECB as it will take time to enhance saving rates in the country”.
He also suggested as a long term measure, the government needs to take certain fiscal decisions such as “incentive of tax exemption on fixed deposits”.
Ugen Tsechup Dorji said banks should be allowed ECB, which the private sector, even if allowed, cannot avail of, because existing rules barred both government and banks from providing the guarantee.
BNBL CEO Kipchu Tshering said International Finance Corporation (IFC) agreed to provide credit to BNB, but it was turned down by the RMA.
Citing the example of Dungsam cement project which consumed Nu 2bn through local banks, the DPNB CEO said major government projects should be funded through ECB and not by local banks as it drains out liquidity with the banks which can actually be lent to the private sector.
The DPNB CEO and a few other businessmen suggested that the government look into the FDI policies as well. “A solution can be through FDI policy by only allowing local partner to borrow from local market,” he said.
Druk Holding and Investments (DHI) chief executive officer Karma Yonten also suggested that financial institutions pitch for ECB given the mounting pressure on the economic situation.
He went on to underscore NK Arora’s opinion on the ECB for huge government and DHI projects. “We have proposed that the government do the funding because the banks will be impacted”. He said the government could borrow the money from State Bank of India at 10% interest rate and lend it to DHI for financing the Dungsam project so that the local banks need not pump in the money and instead spend it on private sectors. “Not only will the financial sector will be stabilized but government will not have to pay the 10% as DHI was ready to pay it. Unfortunately there was no support from the government. I don’t know if they understand the magnitude of the problem faced by banks and private sector,” he concluded.
BCCI president Tobgyal Dorji said private individuals cannot indulge external borrowings and banks are trying to do it but they are being stopped. “We should move this motion to the government jointly as FIs and private sector or else there will be no economy tomorrow,” he said.
Lack of Export Packaging Credit hinder fruit exports
Representatives of exporters at the meeting expressed huge setbacks in business due to the lack of Export Packaging Credit from local banks. They said apple exports were ruined this season as there was no financial assistance at all from FIs.
An exporter at the meet said while there are just a handful of exporters in the country, substantial inflow of foreign currency has been created from the exports. “Some think that there was no market for apple this season, but the truth is, this time the banks refused to provide any assistance”.
Exporters are now worried about the orange season fearing it may meet the same fate.
BNBL CEO Kipchu Tshering said earlier the bank provided EPC to its clients but there has been cases, where exporters misused funds and failed to repay the advance payments to the bank. “The banks do not have very good experience with exporters when it comes to this. Some cases are pending for years with the court,” he said.
To this, an exporter said there are laws of the country to deal with defaulters. “All exporters shouldn’t be affected because of a few who fail to repay advance money. Industries are getting the EPC but we are not given any,” he argued.
The DPNB CEO said “we have the scheme for financing EPC but we do not have big share of the exporters as of now and there are no case of defaulters”.
He added that the bank is meeting the requirements of its existing clients but isn’t entertaining new ones.
The BCCI secretary general apologized to the exporters for their failed apple business this season citing lack of response from the government. “We have asked government that fund can be availed from BDBL and transferred to commercial banks to finance the exporters,” he said.
“If our farmers’ agricultural products are not sold by exporters, farmers will be affected. We will propose to the government for alternative source of financing,” he concluded.
The managing director of the Bhutan Development Bank Limited (BDBL) Pem Tshering said the bank will need corresponding banking with other international banks to provide EPC. He said the central bank doesn’t allow BDBL to obtain license for providing EPC.
He also said the government mandates BDBL to focus on providing credit to rural areas while the current case of EPC is of commercial lending.
Excessive corporate deposits doesn’t help enhance liquidity
Bankers at the meeting expressed a peculiar issue of their own apart from the ones cited by the private sector. They said billions is being deposited by the corporations with the banks which increases the level of liquidity. However, billions are withdrawn in a few months’ time by the corporations which makes it impossible for the banks to make use of the funds.
Although the level of deposits has increased by billions, it becomes an additional liability for the banks as they cannot make use of the funds such as lending out to clients but have to pay interest on these deposits.
The DPNB CEO said “corporate deposits placed with the banks for short term durations should not be taken into liquidity as it is likely to be withdrawn anytime”.
He said the bank needs to focus on the “permanent type of deposits” for credit purposes such as individual, retail deposits and fixed deposits of more than one year.
Though financial experts have said that one of the major causes of the current liquidity crunch was because of the overdependence on corporate deposits by the commercial banks, the DPNB CEO said it was “mainly fueled by financial assistance to the major government projects such as Dungsam and Dagachhu”.
The BNBL CEO said there has been too much economic growth in the last few years which also required huge credit from local banks to finance government projects. “The problem today is, savings in the country is very low and corporations are the only one to support us but they too have become short term depositors”.
BCCI president Tobgyal Dorji said all the issues will be compiled by the chamber and forwarded to the government by mid-October this year.
He said all of the governments “controls, restrictions, ad-hoc policies and regulations” are of no use if there isn’t an economy at all tomorrow. “They can impose rules and restrictions once the major economic crisis is solved by working together”.
Can someone explain to me the headline of “No Economy soon”? My limited understanding of this issue, is that maximum employment is in the civil service, farming or self employment in small businesses. Would these sectors suffer that badly? or is it only a few large businesses making all the noise?
I’m sure there will be ripple effects when some of the large borrowers start collapsing under their debts. Is it a case of needing more loans to pay off other loans or is there just no money in the economy? Also how bad would it really be for the majority of the ordinary people?
Lot of people were taking loans and most making huge risks and spending unwisely and probably suffering the consequences now.
For individuals, a car loan is probably the most stupid loan to take unless you are already in good financial shape to pay for it or are going to use it to create some income.
Also, do our businesses actually create actual wealth? Our construction and manufacturing sector employs mainly expatriate workers and benefits only a few shareholders or partners and some to the state through undervalued taxes and royalties.
Car dealers only import vehicles and do not manufacture or employ huge number of people in Bhutan. They sell to locals through unadvisable loans, which only lead to increased fuel imports that benefit fuel commission agents only and maybe tax income for the govt (but bad balance of payments). In anycase, taxes on cars to reduce numbers or incentives to promote cleaner options will not work unless civil servant quotas are removed.
Im financially illiterate, and my economics is limited to ICSE economics, so cannot judge what the business people say, but I’m always skeptical when big business make noise… of course, big is relative in Bhutan, but I would like to see a valid third party view on this rather than just the business or govt’s view on these matters.
tn is right. i think this hue and cry will apply only to few business people who were on spending spree. The majority of the populace never had excess money until now and and whatever the monetary policy, it is not going to impact them in any way.
The majority of the business in the border towns which are catagorised as economic hub with huge investment by the govt. with the hope of future return are sadly exploited by non bhutanese with a tiny fraction of the return only goes as commission to the bhutanse front man or the licence holder. This fronting business is common to all category like Trading, Manufacturing, Construction etc.. you name it. This is one of the main cause of the current rupee crises and it will not stop in decades until the MOEA or the Govt. as a whole put immediate stop to it. For example, during the closing of the non bhutanese bank accounts in p/ling in march, the accumulated payment amounted to more then 3 billion rupees. Where do you think the source of this money? in my view, this is our money which we could have saved in our accounts, had our business people not rented their license, had our MOEA strictly monitored licensing norms as per standing rule.
It would do us all a world of good if The PM listened for a change . If you enter a discussion with preconceived ideas,we will not get anywhere and drive the people to act out of frustration.
We all love our country and want what’s best so please lead !
This is not simply meta exhageration. While there are few who are in dear need of loans but they should be mindful of the phase of economic progress we are in. Sinse Bhutanese economy is not controlled by Supply/demand system nor by unemployment/inflation as of now, the future looks dark and i offer following options for our sustenance, leave aside government which preaches sustainable economic development and has brought economy to this state. Coincidently there is no apt person in the parlaiment with some stuffs of economics in head.
Those crying foul over car loans should ask themselves of how they would return the sum because the future is brim and we are already heading towards the end, the price of oil is expected to rise further, manitainance cost will escalate and parking fee sucks out more. With meagre family salary of around thiry thousand all that is earned will be absorbed in daily expenses and its predictable they will default loans.
Exporters should be perhaps be given loans, i forsee that banks of Bhutan will have to face international courts if they are allowed to borrow from external source, its a graveyard for the pristine dignity of our land.
Those claiming for housing loans should be scrutinized, both housing and other construction sectors should be made to use Bhutanese workers or leave the construction altogather.
For construction of larger projects, now it is time we employ Bhutanese workers than to seek for external sources of money, the idea that corporate deposit are transitory comes when larger chunk of money goes out of economy in form of wage.
For anyone who fear that Bhutanese wont be able to carry on with construction of large projects, it is because of such fears that we have this day. Seven billion ngultrum leaves nation yearly in forms of wage, Bhuanese pay tax for indian goods and they are in turn consumed by Indian workers.
Immidiate measures government must take is to stop import of high-end products, cosmetics, electronics, clothings or groceries. The cost of public transport, both taxi and busses should be minimized. Discotheques , drayangs and beauty parlour along with bars should be highly taxed such that only people with excessive money and reluctant to deposit in banks would go there. House rents should be scrutinized (a three bedroom flat with kitchen and bathroom should not cost more than five thousand in heart of Thimphu, although this is controversial as many houses in thimphu belong only to few high-profile families) so that the money of the economy gets into banks in larger sums.
Mining should be nationalized, people should be facilated to broke second hand cars, country should focus on starting commercial production of baked goods, dried foods and toiletries which are within our rich.
Floriculture, aquaculture, horticulture, apiculture, and agriculture along with meat and fibre (of both animal and plant origin) production should be intensified, such that we export every fruits, flowers, fish, meat and honey and use Bhutanes fibre.
Emphasis should be laid on maximizing electric cars. Perhaps it is time we suspend construction of new roads and road widenings, it is on priority list that we restrict foreign visits of high profile politicians.
If we hide our errors and point fingers to other person, by next december many shopkeepers, contractors and drivers will be back in villages doings things our ancestors did hundred years ago, in the exact way they did.
This is a an appeal to every Bhutanese, buy cheap clothes, footwears and electronics. Restrict the duration of calls to minimum feasible, travel by cheaper means, eat at home and avoid meat, drinking, doma and cosmetics. Save money in banks, this is only alternative left with us. All this is for better life our our children and better economy of future.
Banks should consider revising the interest rate on deposits and borrowings, agriculture loans may be encouraged.
Unless we follow Bhutanese economics, we all land down in another ditch few years ahead.
Remind me if alternatives are remaining, we wont fail unless corporate greed.
The blame game needs to be ended now, it has done half of the duty by now.
After all blame people in cabinet ministers, for they knew why Mangdechhu project should be inagurated before Sunkosh, they knew why asking Indian depositors to empty their accounts helped us, and they know why 13.5% inflation made every Bhutanese suffer. Perhaps they are aware of unfortunate Tuesdays’ effect on national economy at large and the altruistic happiness of allowing contractors to quarry stones in pretex of widening roads. They have bigger hands on bringing us till here, but we have choice for moving forward wisely.
The excuse that this crisis is long standing is a wite-washed life, they cant pull wool over a nations eye, dont Play music with DPT else this is the dance we see.
agree with most of BHutan 1.0’s points.. however, one point to disagree… try constructing a building and renting units for Nu5000/month. either the bank will own you, or you are a true jangchusemba who has no better things to do with your time and resources than build housing for others.
something is definitely wrong in the our economy. we should not be paying more than 25% of salary for house rent. the rest should go for food, education, clothing, and savings.
Bhutan 1.0 points are well taken. For non-manufacturing, labor scarce, import dependent economy like ours, it does not make sense to pump more money in circulation for it cause further trade and fiscal deficit that will ultimately lead to enslavement of a country. The best course of action as suggested by Bhutan 1.0 is encourage saving and develop agricultural based enterprises for which we have some comparative advantages. BCCI sulking does not represent whole bhutan. It is a symptom of so-called private and construction sectors in Bhutan not able to innovate and create wealth. They have been spoon fed by Banks in Bhutan and disguised their businesses which in real term is simply trading and sucking the NU and RS reserves out of Bhutan.
Cheers
BCCI should really consider how they help to build economy when they take money outside and don’t bring inside. except for export oriented company, giving loans doesn’t make sense….
May be BCCI is protecting commerce of few people instead of Bhutan…
Exactly, all this noise from the BCCI is coming only from the guys who already have loads of money, mind you not because they made it on their own, but because of their powerful connections in the past. All their kids study abroad for which they spend so much money, drive vehicles which cost over 50 lacs and now all of a sudden they feel threatened because they are not making such huge profits any more.
Are we hearing that Govt. controls, restrictions, ad-hoc policies and restrictions imposed on INR spending by way of curtailing import of Alcohols, Furniture and other non essential goods from India are of no use from the President of BCCI. I am confused. Could any one clarify this!