With the primary round of elections in May and the upcoming general round of elections in July, the national focus has shifted from the state of the economy to the electoral race.
However, Bhutan’s economic woes seem to be going from bad to worse with no end in sight. The latest being that major banks have now stopped giving any type of loans.
If people thought restrictions on housing and vehicle loans were bad enough, then the latest move to stop all type of loans will have a crippling effect- not only on the national economy, but also on the personal finances of many households.
Bhutan National Bank (BNB) is the only major bank that is in a position to lend money, but only for personal loans. Soon, BNB will not be in a position to lend money if the economic downturn continues.
The restriction on loans has hit hard mainly the construction and vehicle import sectors, apart from other businesses as well. The latest loan restriction will now hit all other aspects of the economy.
The personal loan that was being given by most banks up until recently was a lifeline for many who used the five-year term of the loan to finance incomplete buildings and other projects. The closure of this avenue will further hurt those who are already in short of finances.
Many businesses, big and small, used overdraft and working capital facilities from primarily the Bank of Bhutan (BOB) to finance their business. Such financial facilities will also be affected as Bhutan’s biggest bank will be unable to lend money.
The DPT government, when in power, made three main contentions whenever discussions on the Rupee Crisis or Credit Crunch came up.
The first initial strategy by DPT was to deny the scope and size of the problem, and to liken it as a natural part of Bhutan’s development process.
The second was to put the blame on other factors like the private sector. The third was to promise that the problem would be solved by 2020, when the 10,000 MW projects are due to be commissioned.
The denial mode did not work for long, as the scope and size of the problem became apparent, hitting all sectors of the economy. The second strategy of blaming others did not work, as it was found subsequently, that the government was the main source of the rupee problem due to its large economic activities, and also due to its failures on the fiscal front. The 10,000 MW promise looks more shaky by the day with the escalating costs, a mounting debt, and also reports from India that financing for the projects are being reviewed.
One notable strategy adopted, especially during the electoral process, is to heap a generous amount of blame on the Royal Monetary Authority (RMA) saying the autonomous organization RMA is responsible for monetary policy.
However, the bankers say that RMA is only exercising all its monetary policy options, in the absence of adequate fiscal measures by the government.
On the fiscal front, DPT failed, in terms of strengthening the productive aspects of the economy that could have strengthened exports, reduced imports, and generated revenue.
A clear indication that the attention of the government was elsewhere instead of solving the Rupee Crisis is when DPT just sat on a report from its own agency, the Ministry of Economic Affairs, listing out a series of measures to deal with the Rupee Crisis.
The RMA had until recently, the Finance Minister as its Chairman. Even today, the RMA board comprises mainly of government representatives. The RMA, at the end of the day, is only a regulator. It can only tighten and loosen the limited money that is available in the economy.
The government, on the other hand, has the more the important job of ensuring that there is a growth in the money supply by stimulating the economy and carrying out correct policies.
The clouds are heavy as all economic indicators show that Rupee and Credit Crisis is set to get worse in the coming months and years ahead. To avoid getting drenched in the rain, the people – especially the political parties will do well to take heed from early on.
“It’s a recession when your neighbor loses his job; it’s a depression when you lose your own.”
―Harry S. Truman