The Bhutanese Leading the way.
With the GDP growth rate hitting the second lowest recorded low of 3.03 percent in 2018, slowing of credit due to a liquidity crunch and its impact on large sections of the private sector- the situation looks bleak.
The Bhutanese asked the Finance Minister and Prime Minister on the government’s plans to deal with the economic slowdown.
Both the Finance Minister Namgay Tshering and Prime minister Dr Lotay Tshering feel that growth in the short term will pick up from 2020 due to a host of government activities.
Lyonpo Namgay said that the GDP growth in 2019 has been predicted at 7.5 percent. However, a senior NSB official associated with the 2018 GDP report said that in 2019 GDP would hover around or even below 4 percent.
Lyonpo said that GDP in Bhutan is driven by public sector investments and in the private sector it has more to do with construction and infrastructure development.
He said in 2018 there were a transition in the government leading to a gap of two to three months and also since a lot of GDP growth rates also depends on hydropower construction the Mangdechu project was coming to a close. He said all this would have driven down the GDP.
The Finance Minister said that the government has allocated budget for both the central agencies and local governments and a lot of infrastructure development activities will be taking place.
The FM said that on the banks going slow on the loans he has had two rounds of meeting with the RMA and the Financial Institutions Association of Bhutan (FIAB). Lyonpo said that an issue is that the loans are more concentrated in the hospitality and construction sector and the Non Performing Loans are very high in these two sectors.
He said that on the banks going slow on the loans it is not due to any direction from the RMA but instead the banks have competed too much among themselves to capture a market share.
Lyonpo said that given the economic dynamics and the market size the the banks may need to look into entering into specialization. Here he said RICBL and BIL should focus more on securitization of loans then competing with BNB, BoB and other banks.
Lyonpo said that in the case of RICBL more than 50 percent of the entire top management was reshuffled and RMA has given a moratorium to the RICBL to streamline and improve its business.
The Prime Minister took the analogy of a rush of patients with Stomach cancer in a particular year saying that cancer would have started developing 15 to 20 years back. He said similarly when there is an economic downturn the seeds were sown around 10 to 15 years back.
He asked when hotel and construction was booming was there any real reason for their boom and was there any smart way in managing it and how the Financial Institutions lent to certain sectors and now there is suddenly a hit leading to the present situation.
The Prime Minister said that two very unfortunate coincidences have taken place with the change in government. He said one is that given the current planning process, which is no more relevant, the economy takes a hit every five years.
He said the second issue is that a dip in the Indian economy also leads to a dip in the Bhutanese economy.
He said the Bhutanese economy cannot pick up when the Indian economy is dipping as the what happens in the Indian economy gets mirrored in the Bhutanese economy five to six months later.
Lyonchhen said this has been the trend of the Bhutanese economy with no control for the the government.
He said he has had a couple of sessions with experts and he has asked the Macro Finance Coordination Committee (MFCC) to give some suggestions on shock absorbers in the short term and also longer economic planning so that the Bhutanese economy does not mirror what is happening in New Delhi.
Lyonchhen said that in this respect the 21st century economy mentioned by His Majesty is not about building bridges and roads and not letting the Bhutanese economy mirror what is happening in New Delhi.
He said the government is working to not add salt to the economic wound.
Lyonchhen said that the economic figures will improve in the coming year as 70 percent of the capital investments still lie unused for the financial year with only 50 percent of the time remaining and 2020 will see the implementation of 25 percent of the capital works coming to around Nu 28 bn.
Lyonchhen said his bigger worry is the long term and the need for a good economic roadmap.
The government will have its task cut out as figures coming out from India show that this could be India’s worst economic slowdown in the last three decades due to deep structural and financial issues.
