A longish discussion on a well-known key to Bhutan’s shorted economy
This paper is an offhand review of Bhutan’s economy in recent years, with a few weak attempts at humor and anecdotes to keep it interesting. The descriptives are kept at a minimum and at no point is quantitative analysis used to prove my points. The focus is on the real sector only, for the readers’ sake and my own. The annoyance amongst the academia as I try hopelessly to explain the complex actions and interactions of so many variables and sectors of the economy is not something I am prepared to undertake. This essay does not pretend to offer its 2-Chhetrums on how to take our economy forward. If you are looking for such, “You’re reading the wrong piece”. Any suggestion otherwise is purely accidental, is the writer’s own views, and does not represent the views and opinions of the publication in which it is printed. Finally, if much of what is written and said here raises more questions than answers, or seems to be going nowhere, it probably isn’t, which is quite to the point. So without further ado …
Actually, it has been official for quite some time now. But, just in case one has been living on a mountain somewhere other than in Bhutan; now is the chance to not only see it but also read about it. So here, Exhibit A:
2013 saw the lowest growth rate in 34 years. Yes, that’s right – thirty-four years. Some may be inclined to call this a ‘generational low’. The 7.1% growth rate (in current prices) is lower than the 8.6% in 2000 or 9.1% in 1988 recorded by the National Statistics Bureau (NSB). Our economy is in a slump, and a deep one at that. I say “is” in the present tense even though the numbers arefrom 2013 because current data is not yet published (at the time of writing this essay); plus even if it were, it makes little difference. The general perception is that things are no better today than it was over the last few years.
This belief might well be true, for a couple of reasons. One, the little gains in growth in 2013 was negated entirely by rise in prices of 8.6%. Assume that a farmer grew 6 kilograms (kgs) more chilies that year. However, the price of rice at his barter-market also increased from 6 to 8 kgs of chilies per kg of rice. Is the farmer better off? In this example, he is significantly worse off. But thank the deities we don’t live in a barter economy right? We have currency as a medium of exchange. Wrong! The purchasing power of the Ngultrum has also declined steadily. The NSB estimates that it takes Nu. 100 in December 2013 to buy the same goods that cost us only Nu. 89 a year ago (in 2012). And, if we broadened our horizons a bit more, by say 10 years, Nu. 100 in 2013 bought goods that cost only Nu. 52 in 2003. This ‘double whammy’ continues in 2015 (see NSB’s CPI reports). Prices remain on the rise and this writer for one has yet to see a reversal or a stabilization in the purchasing power of the Ngultrum. It will take quite a growth spurt to overcome these trends.
Discussing the Doldrums
How do we even begin talking about our sluggish economy? The trendy way of course is to make it about the first two elected governments. After all, it has kept many a Thimphu’s prattle scene alive long after the hearth had gone cold. But we’ve all heard and seen most of what we needed to in the first few years of democracy. An Economic Stimulus Plan (ESP) and a Business Opportunity and Information Center (BOIC) were created to rescue the economy. Their impact? At this time, it’s anybody’s guess. Apart from them, there have been few meaningful or enlightening dialogues in either Tshokhangs about our economic situation amidst more pressing issues like pay, Prado and other perks for our leaders. The takeaway from these assemblies, and in our short experience with democracy is that – if we politicize issues, even ones as critical as a tanking economy, it will yield very few answers but instead, a lot of absurdities, posturing and mudslinging. Let’s leave those in that pen. So, to partly answer my own question, this might not be the best way to begin.
The best way then may be to, well … just talk about it. Maybe this is why the 3 Ps – pay, Prado and perks (or 5 Ps if we include pension and pata) dominate our legislative hubs so. Because us hoi polloi are so eager to start gossiping about juicy infamies. Ipso facto, if we brought up inflation, GDP, employment and interest rates with equal gusto, these might even make it there. I’ve taken my own advice and engaged just about anybody willing to discuss our economic malaise. If it had an ear and a tongue, I chatted to it. The feedback was varied. A productive chat often ended in humor. A discussion where either party’s rationale started chasing its own tail in circles ended in sarcasm at each other’s logic. And, in cases of utter disagreements over facts, figures or even economic laws, digs and jibes of pseudo-intellectualism were slung gratuitously at each other. Nobody likes to be called a ‘Pseudo’, especially not someone with a PhD.
Despite differing responses, there were recurring themes and critique of my views on the economy. The least imaginative was that – comparing Bhutan’s growth rate in 2013 to the 1980s and 1990s is ‘misleading’. Meaning, it’s easier to have a higher rate of growth from a lower base (as it was then) than it is from a higher base (as it is now). This reasoning is mathematically correct. The economy grew from just Nu. 1.1 billion in 1980 to Nu. 105 billion in 2013. But my gripe is that, this train of logic ignores (amongst other things) the value of a Ngultrum then and now. A kilo of rice was imported at Nu. 4.7/kg and potatoes at Nu. 1.7/kg in 1983 by the Food Corporation of Bhutan (FCB). In 2011, these cost Nu. 15.8/kg and Nu. 7.7/kg respectively. A caveat – these figures are only extracts from NSB’s import statistics and may not represent market prices. Our own experiences at the weekend-bazaar costus over Nu. 37/kg for (white) rice and Nu. 52/kg for potatoes (as of 2014). If grocery shopping is not your thing, then it is also not unusual to hear the elders talk about land deals where a decimal (435.6 square feet) sold for a million; the same which was valued at a few thousand Ngultrums some 20or 10years ago. The point is – controlling for ceteris paribus conditions (interest rates, price, employment, etc) when comparingmacro-indicators across time is a perilous task even when building robust statistical models let alone casual, albeit academic powwows. Every variable comes into play. Our forefathers worked equally, if not harder, for their Nu. 100 monthly salaryas we do today for Nu. 10,000. And while they did so, they even doubled the economy every 4 years (using a simple “Rule of 70”).
A second (and often smug) retort is, “Well, we’re doing fine in the region” implying that Bhutan is growing faster than India or Nepal. Faster? Yes, but only marginally. More robust? Probably not. The cross-country comparisons, while encouraging, areillusive. Figuratively, it is like comparing a beetle’s pace to that of an elephant’s. India’s GDP in 2013 was US$ 1.9 trillion. That’s 109 trillion in our money. Nepal had a GDP of US$ 19.3 billion or 1.1 trillion Ngultrums. It does not take a genius to see that adding 14% to a US$ 1.8 billion economy is not the same as adding 15% to a US$ 1.9 trillion economy in India’s case, or 11% to a US$ 19 billion economy as Nepal has over the past few years. India’s growth rate in 2013 alone was 150 times Bhutan’s total GDP that year. Now, that is a whole lot for perspective.
Then there is the question of robustness. Bhutan’s economy, to state the obvious, is highly dependent on water. This is best articulated in the famous statement, “Water is to us what oil is to the Arabs”. The good: we have harnessed this potential well (so far). The bad: most of our eggs are in one basket. Water, electricity and associated construction account for over 30% of Bhutan’s economy, which explains most of its growth volatility with vastly fluctuating peaks and troughs as shown in Exhibit B below.
In contrast, both India and Nepal exhibit less growth volatilities. Nepal, like Bhutan, relies on a key economic driver – remittances. It accounts for 25% to 33% of GDP. This is one reason why their economic swings are also wider than India’s. India’s economy is relatively stable. It is based on a wide range of market activities from farming (world’s second largest in terms of output) to textiles, I.T and BPOs. It is one of the world’s top five retail markets. We are definitely not ‘doing fine’ compared to our neighbors. What’s more, it would be remiss not to point out that, in 2013, both India and Nepal grew faster than Bhutan in real terms (i.e. price adjusted growth) according to The World Bank. The last time this happened was some 20 years ago in 1993.
Ask a Bhutanese politician for his economic reform policies, the likely answer, “Build a hydropower dam (preferably in my constituency)”. Ask a bureaucrat, “Request India money for a dam”. Ask a local economist, “Plan for a dam”. Ask the foreign expert, “How’s that dam coming along?” Nobody gives a damn (forgive the pun) about anything else. The irony is, they are also the first people to point out that our bets are damningly hedged in hydropower. We are neck-deep in Nu. 44.5 billion hydropower dues with total debt up to our eyeballs of Nu. 94.5 billion (2013 figures). It is little surprise then that whenever the subject of Bhutan’s economy comes up, the word ‘hydropower’ sits on the tips of many a tongue, aching to be blurted out in any semblance of expertise or wisdom. The two are synonymous, like ema-datshi. If you mention to a Bhutanese in passing, “Wow! The price of ema has shot up”; he or she is most likely thinking, “I wonder what datshi costs now”.
The ease with which many experts, economists and talking heads brush off serious inquiries into the nature of our economy is also surprising, even if never reassuring. A common riposte being, “Don’t worry, it’s all cyclical. When ___ (fill in the name of hydropower project) comes online, the economy will bounce right back”. The originality of this insight only slightly adulterated by the gumption and patronizing finality with which it is delivered, only slightly. At this point, I am always tempted to dive right in with an “Aha!” That the cyclicality around hydroplants is only in the near and medium terms. In the long run we are really experiencing a steady and gradual decline in growth trends as indicated by the thin grey line inclining downwards from left to right in Exhibit A. But, one has to count their blessings where they can find them. So, it must be said that people are mostly correct in assuming hydropower dictates our economic highs and lows. Bhutan’s first ‘boom’ occurred with the start of Chukha Hydroplant (CHP). In 1986, its first 84-million unit (MU) hydro-turbine was completed. The following year (1987), the economy grew by an all-time high of 28%. We had found our veritable ‘goose that lays the golden eggs’. To date, CHP remains the most important milestone in the country’s socio-economic development. Its success was followed with Kurichhu (60 MW), Basochhu (64 MW) and Tala (1020 MW) hydropower plants; all contributing to notable growth surges around the periods in which they were commissioned. This is illustrated in Exhibit A with records from Druk Green Power Corporation (DGPC).
By P.W. Dorji
A writer at large with parochial interests in economics, finance, government and the arts.