If there was one major issue that decided the 2013 elections, then it was the state of economy.
Well aware of this, the current PDP government right from coming into office visibly focused on several measures and initiatives to strengthen the Bhutanese economy.
Addressing the nation, five years later, in the last Parliament session before the 2018 polls, the Prime Minister laid out the state of the economy in figures and facts.
Lyonchhen said that at the commencement of the 11th Plan, one of the first priorities of the Royal Government was stabilizing the economy as it was under severe distress.
“This was necessary as GDP growth had slowed to an all-time low of 2.1%, inflation had reached 13.5%, private credit had been frozen for several sectors, import restrictions were in place, foreign reserves had fallen to about US$ 920 million and Bhutan’s total trade value slowed to about Nu. 85 billion,” said Lyonchhen.
He said acknowledging these challenges, several initiatives and reforms were undertaken in collaboration with the private sector and other stakeholders to make the state of the economy one of the key considerations of the government.
“I am pleased to inform that in these five years, not only has our economy bounced back, but it has become stronger and more robust,” added Lyonchhen.
The GDP has grown from Nu 100 billion in 2013 to Nu 180 billion today allowing the Bhutanese economy to be identified as one of the fastest growing in the world by several reputed international institutions such as the World Bank, ADB and The Economist.
GDP growth figures reached as high as 8% in 2016 and about 7% in 2017. With the commissioning of the Mangdechu Hydropower Project this year, the economy is expected to grow even further.
Inflation is under 5%, the total trade value has reached Nu 104 billion and commensurate with the expansion of the economy, domestic credit has increased from Nu 57 billion in 2013 to Nu 105 billion.
Lyonchhen said that an increase in domestic credit is positive news as it directly correlates to the expansion of the private sector and an increase in economic activities.
He said that expansion of the private sector is very much necessary in order to expand the revenue base and generate employment opportunities.
“One impediment that is regularly cited is lack of access to finance due to high interest rates. Therefore, interest rates were reduced from an average of 13.41% in 2013 to 10.60% in 2017. Such a reduction has translated to savings of Nu 3.2 billion for private businesses and I thank the Royal Monetary Authority and all the banks for their support in implementing such important initiatives,” said Lyonchhen who had proposed to the RMA to reduce loan interest rates in a round of meetings two years ago.
In parallel, domestic savings has doubled from Nu. 14.8 billion in 2013 to Nu. 28.1 billion.
This, Lyonchhen said, is an important sign of growing prosperity and also provides the necessary capital for the financial institutions to lend and generate increased economic activities.
The foreign exchange reserves have also increased from US$ 920 million to US$ 1.2 billion.
“Of this, Indian Rupee reserves alone stand at Rs 18.6 billion, a significant improvement since 2012 when the country was still reeling under the impact of the rupee crisis. During that period, Rupee reserves fell to just Rs 1.5 billion and we had to borrow Rupee at high interest rates,” said the PM.
Lyonchhen pointed out that during that period, loans for construction and vehicles were also stopped and even if one had money, people were not allowed to construct buildings or import vehicles.
Several people resorted to buying goods at inflated costs in Jaigaon.
He said that today, the situation has improved but there has to be vigilance as a similar crisis can be easily repeated.
“A similar vigilance must be overseen with the country’s composition of external debt which in total has increased from Nu 95 billion in 2013 to Nu 170 billion today. This has caused concern among some but what needs to be understood is that the increase is because of hydropower loans,” said the PM.
He said that hydro loans increased from Nu 54 billion to Nu 132 billion in the 11th Plan and this simply translates to a lot of hydropower work having been carried out on the ground. Further, hydro loans are paid by the electricity generated by hydropower projects themselves.
“The real concern is on the non-hydro loans as the government must pay them back from its other sources of income. Non-hydro loan decreased from Nu 41 billion to Nu 37 billion in 11th plan period and no debt was taken for the establishment of central schools, procurement of off-road utility vehicles, power tillers and helicopters,” said Lyonchhen.
He said he had shared earlier that it is extremely challenging to enhance domestic revenues without imposing significant burden on the general public.
“Which is why I am extremely satisfied to share that revenue from taxes almost doubled from Nu 58 billion in 10th Plan to Nu 102 billion in the 11th Plan despite the Royal Government having reduced or waived several taxes in the last five years,” said Lyonchhen.
The PM said these reductions and waivers were put in place to support the low income populace (PIT exemption slab was increased from Nu. 100,000 to Nu. 200,000), support rural businesses (exemption from paying business taxes) and also promote domestic entrepreneurs and enterprises (through fiscal incentives) to name a few.
“Such an increase in revenue from taxes is extremely significant and it further indicates that the economy has expanded,” he added.
On the trade front the trade deficit in 2012 was Nu 24.7 billion or 25% of GDP while in 2017, it was Nu 29.7 billion or 17.4% of GDP.
“However, the trade deficit is still a cause for concern and the only sustainable solution to this situation is to diversify our economy, by building our productive capacity to increase exports and reduce imports. Nevertheless, we are optimistic that the trend of the last five years of the trade deficit reducing will continue,” said the PM.
He mentioned the renewal of the India Bhutan Agreement on Trade, Commerce and Transit in 2016 which has additional provisions to further enhance trade and investment between the two countries through trade facilitation by improving procedures, cutting down on documentation and adding additional exit and entry points for Bhutan’s trade with other countries.
Similarly, the Trade Agreement between the Royal Government of Bhutan and the People’s Republic of Bangladesh was renewed in 2014 for a period of ten years.
As part of the government’s business reform agenda, the government committed to be in the top 100 position in the Ease of Doing Business ranking. Bhutan’s Ease of Doing Business ranking improved from 142nd in 2012 to 75th in 2018. This is one of the fastest improvements in the world.
“Due to such reforms and other economic development policies and programs, many new businesses have started in the 11th Plan,” said the PM.
In 2012, there were a total of 13,068 Cottage and Small Industry (CSI) licenses in the country and today there are more than 19,000 licenses.
Similarly, in 2012 there were a total of 19,423 trade licenses and today there are more than 40,000 trade licenses. In 2012, there were a total of 381 medium and large industries and today there are 748 such industries.
Lyonchhen said that even foreigners noticing the change in the investment climate, have started approaching Bhutan as a potential investment destination. As of 2012, 30 Foreign Direct Investment (FDI) projects were approved and in the 11th Plan, 38 FDI projects worth Nu. 8.3 billion were approved with 16 projects worth Nu. 1.8billion having started operations.
“We expect more industries and projects to be established after completion of Jigmeling, Dhamdum, Motanga and Bondeyma industrial estates,” said the PM.
The tourism industry is one of the five jewels and it has also expanded rapidly. In 2013, there were arrivals of around 116,000 tourists. Last year alone, there were 255,000 tourists which is more than a 100% increase in just five years. From these figures, about 72,000 were international tourists and 183,000 were regional tourists. This growth in tourism brought in additional revenues of Nu. 8.4 billion last year compared to Nu. 5.5 billion in 2013.
The industry also created many jobs leading to the number of tour operators increasing to 3,100 from 1,100 in 2012; number of tour guides increasing to 4,000 from 1,900 in 2012 and number of hotels increasing to 1,400 from 900 in 2012.
The PM said that fuel in Bhutan is still much cheaper than in India.
Lyonchhen said that the main driver of the economy, however, continues to be hydropower.
“His Majesty has stated that hydropower is the dotey of the Bhutanese people and that it belongs to all the people,” said Lyonchhen.
Gross earnings from hydropower in the 11th Plan amounted to Nu. 75.2 billion compared to Nu. 45.85 billion in the 10th Plan. The earnings increased mainly on account of increase in export tariff. The Tala and Kurichu export tariff increased in January 2017 from Nu 1.98 to Nu. 2.12 per unit. The Chukha tariff also increased, once in 2014 from Nu 2 to Nu 2.25 per unit and again this year to Nu 2.55 per unit.
“I thank the Government of India for their continued support in the hydropower sector,” said the PM.
Of the Nu 75.2 billion in earnings, Nu 17.93 billion was used to pay back the hydro loans. The Kurichu Hydropower loan was also fully paid back in 2016 and Tala Hydropower loan will be cleared this year. After the liquidation of Tala’s loans, the government will have an additional Nu 2.58 billion which will be retained in the country. During the 11th Plan, the Dagachu Hydropower project was completed in 2015 and Mangdechu Hydropower project will be completed later this year.
The Kholongchu Hydropower project started construction in 2015, Nikachu Hydropower project started in 2016, 84% of Punatsangchu I Hydropower project and 77% of Punatsangchu II Hydropower project completed as of May 2018.
In addition, discussions are currently underway with the Government of India to start construction of the 2585 MW Sunkosh Hydropower Project.
He said the completion of these projects will help build and sustain the necessary foundations of the economy.