Draft Economic Stimulus Plan calls for a Nu 5 bn injection into the Economy

The Cabinet sets up a national level task force to finalize the ESP within a week

 

The latest draft Economic Stimulus Plan (ESP) of the PDP government has recommended a Nu 5 bn stimulus plan up from the earlier Nu 3bn ESP pledged by PDP during the campaign process.

The ESP apart from providing some medium term solutions to the credit crunch and rupee crisis also takes care of subsidizing some key PDP pledges including those included in its first 100 days.

Following the successful completion of the 2013 elections on 13th July 2013 the PDP created a special task force headed by the MP Lekey Dorji to work on the Economic Stimulus Plan of the government.

The task force lead by Lekey improved the original ESP after working in close consultations with the finance secretary and other finance ministry officials. It also met senior officials from the Ministry of Economic Affairs. The draft report of this task plan was submitted to the new government.

The cabinet in its first meeting approved the setting up of a national level taskforce of seven officials with the mandate of finalizing the ESP within a week from the date of the first cabinet meeting.

The draft Economic Stimulus Plan (ESP) for Nu. 5 billion has been prepared outside the 11th plan outlay to put the economy on a sustainable path over the medium-term.

Of the total, Nu 4 billion will be injected into the banking system and Nu.1 billion for subsidies.

The draft report says that since any increase in the lending activities by the banks and extension of subsidies to targeted sectors will directly translate into imports from India, it is imperative that the ESP be backed up by Rupee buildup.

“Therefore, the Government of India’s kind assistance in the form of a grant of Nu.5 billion will be critical for the success of the ESP,” says the report.

 

Injecting Nu 4 bn into Financial Institutions

Nu. 4 billion will be used for increasing liquidity and injecting capital in the banks for lending to productive sectors that contribute to various national goals such as youth employment, small and medium enterprises (SMEs), entrepreneurship and start-up business, agro-business, import substitution, construction, housing, green business development, women empowerment and many others.

In order to enable the banks to lend within the RMA’s norms, Nu.4 billion will be provided to the five banks in the form of equity infusion, long term deposits and interest free long term loan.

The distribution of ESP will be carried out according to assessment of loan portfolio, balance sheet size and growth rate. The ESP could be used for starting a fund for micro finance institution (MFI) to promote financial inclusion in the rural areas.

Of the 4 bn there will be an equity injection of Nu 1.5bn. Currently most of the banks are limited by the CAR set by RMA to lend further and the draft says that these banks can only be strengthened through increase of shareholders fund for which capital infusion is necessary. As such, about 38% of the available fund has been proposed for enhancement of paid-up equity of the banks.

Nu 1 bn will be put in as long term deposits for the banks so that banks will have a strong long term deposit base to finance long term projects.

Nu 1.4 bn will be a revolving fund for targeted lending in order to direct the lending in targeted priority sectors, based on the plans and polices of the Government to promote micro, small and medium enterprises (MSMEs) for employment generate employment, boosting domestic productive capacity and export promotion. The revolving funds will be created with the banks for collateral free lending to viable projects at concessional terms.

Nu 100 mn will be set aside for Micro Finance Institutions to enhance access to credit and financial service in the rural areas, creation of a fund for micro finance institution. The draft says this would help to enhance rural income and improve the living conditions of the people. The fund will be used as wholesale fund for micro finance.

 

Nu 1 bn in subsidies

As an integral part of the ESP, the Government will provide Nu. 1 billion as subsidies for  targeted business and activities which includes subsidized loan schemes for students to pursue higher studies, student discount for public transport including air travel and free electricity to rural households among others.  Such subsidies will be phased as and when the economic situation improves.

 

Subsidy for higher education expenses: Nu. 150 million

The draft report says that providing education is the top most priority of the Government and the Government plans to establish three new colleges in the east to cater to the increasing number of students passing out of the schools.

Till such a time the institutions are established, the Government would provide subsidy for pursuing higher education in Bhutan and in India to those who do not qualify for regular scholarships. On an average the report estimates that more about 500 students will be availing education loans for which the interest subsidy will be at least Nu.30 million per annum. For the plan period, the subsidy on account of education will be about Nu 150 m.

 

Free electricity:    Nu. 250 million

The draft report says that based on the present consumption trend of electricity, the consumption under block 1 (lifeline block which is up to 100 units) is estimated about 102 million units per annum.  It says that assuming that 60% of the consumer under this block is in the rural areas, the subsidy required to provide free electricity to these group of consumer would be about Nu 50 million per annum. Therefore, a subsidy of Nu. 250 million is estimated for the plan period.

 

Allowances and sponsorship of annual pilgrimage for senior citizens: Nu. 300 million

In order to help the senior citizens to live a dignified live and devote free time for prayers, support for monthly allowance and annual pilgrimage sponsorship to Bodhgaya will be provided, says the report. As per the Statistical Year Book 2012, of the total population, there are 21,697 senior citizens (70 years and above). Assuming that 50% of the senior citizens require support, Nu.60 million will be required per annum. Such allowances and sponsorships will be extended to only those who do not have post retirement benefits or steady sources of income.

 

Unemployment benefits for the youth:  Nu. 300 million.

To provide financial support to out of school youth till they are gainfully employed, a modest monthly allowance will be provided to those coming from low income group.  Based on the unemployment rate of 2.1% as per the Labour Force survey (2012), there are more than 7,300 unemployed youth. The draft report says that the Government will endeavor to provide employment to all.

However, till such time, the youth are employed, a monthly unemployment allowance of Nu. 3,000/- for six months or till gainfully employed whichever is earlier will be provided to meet their basic needs. Assuming that 50% of the youth are from the low income group rural poor, the financial implication is estimated at Nu. 300 million for the five year period.

The report points out that since the ESP is requested in the form of a GoI grant, its impact on the Balance of Payment will be minimum.

The Government will table the ESP during the first session of the 2nd Parliament for endorsement and will be implemented and monitored by the Prime Minister’s Economic Advisory Council.

To kick start the ESP and to have maximum impact, 100 % of the fund committed for ESP will be requested to be disbursed upfront.

Annual progress report and audit report will be submitted to GoI by the EAC. The impact of the ESP will be carried out by the end of the 11FYP.

The main outcome of the ESP will be a strong and vibrant financial sector with adequate liquidity to extend credit to the clients for carrying out economic activities which will contribute towards achieving full employment. Further, the provision of the subsidies in target business sector and actives will help improve the living standards of the low income groups.

Meanwhile the press release from the first cabinet meeting of the PDP says, “Recognizing the urgency and need to enhance the ability of the financial institution to meet the borrowing requirements of the people, the People’s Democratic Party had prepared an Economic Stimulus Plan (ESP) which was submitted to the Government for review.”

It says, “One of the main priorities of the ESP is to find ways to inject sufficient liquidity into the banks to enable them to lend more, especially in the areas that are of concern for the economy and the nation.”

According to the release the seven member team set up the government to finalize the ESP within a week are Nim Dorji, Joint Secretary, Ministry of Finance, Sonam P Wangdi, Joint Secretary, MoEA, Pushpalal Chhetri, Deputy Governor, RM, MP Tashi Wangyel, national Council of Bhutan, Tshering Gyeltshen, CEO, Bhutan Insurance Ltd., Kunzang Dechen Dorji, Jajin Consultancy Services and Dechen Tshering, c/o Rinzin Lhamo, Hotel Taj Tashi.

It says in order to ensure successful implementation of the plans included in the ESP, the taskforce shall propose arrangements to closely monitor its implementation, especially in the initial months.

 

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