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Finance Minister says economy will recover to 1.3 % growth by June 2021
The Fiscal Incentives 2017 will be running out by 31st December 2020. The incentives which were originally brought in from 2010 are mostly tax breaks given to various sectors of the economy like services, manufacturing and others.
The DNT government during the 2018 election campaign had criticized the FIs as going mainly to the well off and it pledged to retarget the FIs to ‘narrow the gap.’
Now with COVID-19 impacting the economy, the Minister of Finance Lyonpo Namgay Tshering said the government is looking to bring in FI 2020 that is part of the new normal and is a much more targeted intervention than before.
He said that an assessment of the impact of FI is being done by the Gedu College of Business Studies and they will present their report to the government within this month.
Lyonpo said that the ministry had done a desktop analysis and found that FI so far in terms of employment had only led to some increase in employment.
He said that, however, the ground impact of the FI needs to be seen.
The FM said that focus of the FI will be on generating employment, boosting exports, import substitution and tech and innovation.
Lyonpo said that the FIs are not yet finalized and still being formulated. As part of this the MoF has met with stakeholders like Tourism Council of Bhutan, Tour Agents and Hotels with regard to tourism, with the Ministry of Economic Affairs with regard to manufacturing, with Bhutan Chamber of Commerce and Industry on the business front and also meetings with Construction Association of Bhutan and others.
Lyonpo said that the aim is to get a wish list from the various sectors with the COVID situation.
Nu 10 bn had been given as FI from January 2008 to February 2018, however, around half of this went to government companies and the government itself.
Of the 10.097 bn Nu 5.044 bn was in service sectors like airplanes, telecom etc., Nu 4.276 bn in manufacturing, Nu 447.69 mn in hotels, Nu 209.63 mn for health equipment, Nu 57 mn for education, Nu 28.88 mn for travel agents, Nu 18.21 mn in ICT, Nu 9.25 mn in transport and Nu 5.39 mn in film and media.
In terms of other fiscal measures Lyonpo said that the MoF has asked budgetary agencies to expedite plan activities and spend their budget as government expenditure contributes to the GDP.
Lyonpo said that the MoF has simplified processes and is also allowing a certain level of flexibility to agencies to reprioritize activities on the ground as long as the results are met.
Talking about the state of the economy, Lyonpo said that the -6.7 percent GDP projected in August was only in the case of repeated national lockdowns which would not happen and there would only be smart lockdowns.
He said at the current level the GDP this year would be around -2.1 percent.
He, however, said that by June 2021 the economy will improve to grow by at least 1.3 percent.
The minister said economic growth will reach such a number due to the various mechanisms being put in place by the government as the August lockdown will never happen, and there would be smart lockdowns in the future that would allow economic activities.
He said the government is allowing skilled people to come in, Build Bhutan is gaining momentum and it is expected that Bhutanese youth will replace some of the Indian workers going back.
He said that a vaccine by then would also come into play.
Lyonpo said that the pandemic has slowed down the economy but at the same time the MoF has also proposed various measures like enhancing boulder exports with exports to start soon. Other measures like using the forest products and various other steps have also been suggested said Lyonpo.
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