How COVID-19 affected the economy in 2021

The COVID-19 pandemic has tested the resilience and tenacity of the country by pushing it to its very limits, which has enabled us to access how prepared Bhutan is in tackling such a situation, without triggering dire repercussions.

Bhutan’s economy has been adversely affected by the pandemic, and the subsequent border closure to contain the threat of the coronavirus outbreak. Exports and imports have decreased significantly, in line with weak foreign and domestic demand and disruption of trade. As of 2020, the economy recorded a growth of -10.08 percent, which is 15.83 percent drop, as compared to a growth of 5.76 percent in 2019 according to the National Statistics Bureau (NSB) report.

The construction sector, in particular, has been facing difficulties due to the pandemic. The closure of international gates has sparked the flames of skilled labor crisis in the country, and the two national lockdowns added fuel to the already ailing sector. With lots of bills pending due to lockdown and construction materials stranded in different places, the contractors faced difficulties in paying their workers and in supplying the essential goods.

In addition, the cost of the construction materials was going up due to high demand and low supply, and there was a worry of being charged with liquidity damage. One of the challenges faced was an inadequacy of Bhutanese workers in the construction sector, both in number and in expertise. All of which translated in the construction sector noting further negative growth of -20.64 percent in 2020 from a negative growth of -14.66 percent in 2019.

But now, the outlook for the construction sector is better, with quarantine centers for foreign workers ready and ease in the import of foreign workers to offset the labor shortage.

One of the possibly worst hit industries during 2020 was hotels and restaurants, which largely depended on number of tourist arrivals in the country. Due to the pandemic, many hotels had to resort to desperate measures, like sending the staff on leave or on half-paid leave, while others had no option but to lay off their employees.

Amidst the pandemic, City Hotel managed to pay staff salaries. Some hotels had been even used as quarantine centers by the government.  The dismal economic outlook for the hoteliers and the affected staff were lifted when when the Druk Gyalpo Relief Kidu was launched on 14 April 2020, and it has supported the livelihoods of more than 34,000 people.

Upon the command of His Majesty, the National Resilience Fund was set up in April 2020 to provide economic relief to people through the Druk Gyalpo’s Relief Kidu (DGRK), granting a monthly income support to individuals, and loan interest payment support to borrowers for a period of one year (April 2020 – March 2021). Over 37,000 people and their children have been granted the monthly income support Kidu in the last one year, while close to 140,000 loan accounts benefited from the interest payment support. On 22 April 2021, coinciding with the auspicious occasion of Zhabdrung Kuchoe, His Majesty the King commanded the continuation of DGRK for 15 months, from April 2021. This is in view of the ongoing social and economic difficulties faced by the people due to the COVID-19 pandemic, and the uncertainties stemming from regional and global developments. This, of course, came as a relief to the Kidu recipients.

The prices of various commodities, particularly vegetables, saw drastic escalation as the pandemic peaked in 2020. Some items that were normally priced at around Nu 60 to 80 was even reported to have increased to as high as Nu 400 or even higher. Such price escalation was created due to the uncertainty caused by the pandemic, and prices determined by market forces and vegetable vendors through collusion, creating inflation in the market and increase of price from the source, itself. Another reason was practice of unlawful conducts and manipulation of prices. On the side of vegetable vendors and producers, tons of vegetables could not make its way to the market this time around. There are reports of farmers having to dump their vegetables into rivers and used as cattle feed, after they failed to sell them.

The Opposition party said that primary causes of this unfortunate incident was the government’s inefficient buy-back system and farm produce being disallowed to be exported to India because of some fissures in trading arrangement between the two countries. The drop in vegetable business was also attributed to absence of foreign workers who purchased the vegetables in large number as well as excess production with less people ordering, which caused rotting and dumping of vegetables in dustbins. Despite the economy shrinking, agriculture made amazing growth this year through economic contingency plans. The pandemic provided the unique opportunity for farmers, and due to limitation of export and imports, people had to depend on locally produced farm produce, which resulted in growth in the agriculture sector.

2021 also saw extortion, damage and theft of imported goods at Mini Dry Port in Phuntsholing, which fueled the commodity prices. The importers and traders also had to pay illegal extra charges to bring in their consignment from Phuntsholing or else face the risk of keeping the goods in queue for many days, paying high demurrage charges and taking risk of damage/theft.

Inefficient vehicle registration system, bribery and smuggling prompted the DRC to release CRCMS this year, which is basically a revamped vehicle registration system with enhanced security and features.

Also, importers had to switch the drivers at Sorchen, which doubled or tripled the transshipment charges. Fuel prices saw continuous rise except for slight decline in final quarter of 2021.

Communications has shown positive growth due to reduction in data charges and online learning facilitated due to the pandemic, while the transportation sector showed a negative growth due to increase in fuel prices and restriction of movement. The Drukair and Bhutan Airlines suffered losses in billions.

Mining and quarrying also were adversely affected due to the Mining Bill being indefinitely deferred and halt in mining activities. Entertainment centers, like bars, karoakes, etc., that were closed down for the larger portion of 2020 and 2021 have been allowed to open for business till 10 pm, with the exception of drayangs that are still closed due new technical standard requirements for the safety of employees and patrons.

Some tax reforms have eased the burden of escalating prices on imported goods. The COVID-19 pandemic has affected people from all walks of life, but Bhutan handled the pandemic effectively, and the focus is on recovery in all spheres of life, while we step up the vigilance against the variant of concern, Omicron.

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