Keeping an eye on the economy

Bhutan has enjoyed a booming economy in the last few years evidenced in the huge construction boom in urban areas, rising land prices, record apartment prices, more car purchases -among other visible signs.

Some would say that Bhutan’s economy is still at an early stage so there is still a lot of space for growth and expansion.

However, if one takes a close look at our nature of growth, there should already be some early alarm bells ringing.

Our growth is mostly consumption and import driven that widens the balance of payment gap.

The big buildings need large imports and the vehicles are almost exclusively imported from abroad, which hits both our rupee and dollar reserves.

This growth has also been fueled in large part due to an extraordinary and unprecedented credit growth to the extent that our financial institutions are short on liquidity.

The bigger danger is that many of them are heavily exposed to sectors like housing and services and tourism.

The biggest chunk of services and tourism loans are in a mushrooming of hotels well beyond the tourist arrivals in Bhutan. This is one sector to watch with a series of possible bankruptcies predicted here due to overcapacity.

Housing is a more reliable and robust sector as there is always demand for it, but the theory goes that once a slowdown is in effect it can also impact housing as once people lose jobs they would not have the incentive to stay in urban centers or even move to them in large enough numbers.

There is already deep worry in the cement and steel industry that a slowdown is coming as banks tighten their loans due to liquidity issues and over exposure.

An optimistic forecast would say that liquidity is a cyclical issue and growth would kick start again, but it is difficult to see where the FIs would get huge injections of deposits from to keep up the boom levels of growth and activity.

A big external danger lurking for Bhutan’s economy is the slowing Indian economy and this will definitely impact us and is already starting to hit us with reduced demand for our industrial goods there.

Since the 1970’s Bhutan’s GDP has moved up and down with that of India given that more than eighty percent of our trade is with them.

India seems to be headed for both a structural and cyclical slowdown and we will be hit too.

Economy has frequently nothing whatever to do with the amount of money being spent, but with the wisdom used in spending it.  
Henry Ford

About Developer

Leave a Reply

Your email address will not be published. Required fields are marked *