One of the big questions of the second national lockdown is its impact on the economy, revenue collections, budget and the economy in general.
The Prime Minister Dasho (Dr) Lotay Tshering said that a formal economic impact assessment is not simple as the numbers will have to be fed in but the impact this time on the GDP will be much lesser as the imports and exports are going on as normal.
Giving an example, the PM said that currently orange exports are being facilitated from the Dzongkhags.
He said that Dzongkhags are also being allowed to allow movement within the zones in the Dzongkhags with the details and timing left to the Dzongkhags.
He said that lockdown would have an impact and the Macroeconomic Framework Coordination Committees (MFCC) will see that impact.
The PM said it is important to have effective expenditure, ensure that village produced vegetables and fruits reach their markets, all imports should go on, livestock and poultry should go on and even in industries workers within the factories minus external day workers are allowed to operate the factory as long as they stay within the campus.
Economic activities going on and GDP
The Finance Minister Namgay Tshering also said that there will not be significant impact on the GDP as all government offices were functioning virtually and budgetary agencies and especially gewogs are rolling out capital works.
He said the bigger industries are working in a self containment mode.
Lyonpo said the local economy is still functioning and the zoning system has allowed shops to open and supply essential commodities. Lyonpo said that the aggregators of the Agriculture Ministry are on the move in the east and south which are growing vegetables to meet both local as well as demands in Thimphu, Paro, Punakha and Wangdue which are not growing anything. He said this supply of goods is benefitting farmers.
The minister said that the GDP growth until December was projected to be negative 6.1% and it will remain at that despite the second lockdown. He said if the lockdown gets longer then it may go to a maximum of negative 6.5%.
Lyonpo said that the MoF has asked all the agencies to verify the capital budget used in the last six months. He said at last count around 9 percent of that budget had been used and this he said is not a very low figure as it is similar to normal years.
However, the minister said given the second lockdown it may not be possible to spend 90 percent of the Nu 36 bn capital budget as targeted and it may come down to 80 percent.
The minister said that the budgetary exercise is being carried to find out which activities could not be carried out and accordingly money would be reallocated for activities that can be done.
The minister said that the main damage to the economy came from the shutting down of tourism due to COVID-19 and also from the first 21-days lockdown which did not see any economic activity at all for around two weeks.
He said the tourism sector in turn hit hotels, airlines, restaurants, suppliers like shops, handicrafts etc.
Lyonpo said that in the current lockdown even in Thimphu and Paro the local economy is still functional in terms of some shops supplying goods and even hotels keeping people in quarantine.
Lyonpo said that one loud and clear message from the National Day address is on the huge negative impact caused by COVID-19 on the economy and the need to help people.
The minister said that the Royal Kidu deferment of loans and waiver of interest rates followed by the Druk Gyalpo Kidu sending money to around 30,000 plus people who lost jobs due to the pandemic positively impacted the economy.
The minister said that the MFCC has estimated that household consumption by the end of December would come down by around 24 percent and so the Kidu helped boost expenditure.
The Finance Minister said that an important step is encourage private investment and that can only be done by giving them access to easier and cheaper loans. He said this is important as people may want to shift from tourism to another business but this needs capital to do so. He said while the banks should secure their position their loans should not come with too many conditions or the loan would remain idle with them.
Not much revenue impact
The minister also said that there should not be much of a revenue impact due to the second lockdown beyond what was already forecast earlier. The minister said that tax paying entities are able to still export and import and this time around in fact the situation is better than earlier when Bhutan was not under a lockdown.
Lyonpo said that earlier either India was in a complete lockdown or its states like West Bengal and Assam or others did intermittent lockdowns which impacted Bhutan’s exports. Now there are no lockdowns in India and that is beneficial to Bhutan.
The minister said that even in Paro where he is located around 80 to 85 percent of the cases are from Shabha which means that it is not a full blown community transmission but a localized transmission. He said the response should be strategic in manner to contain and manage that place and then if cases come up somewhere then they can be managed accordingly.
The minister said that in his personal view it is also important to be able to co-exist with the virus. Going back to the Shabha example he said restrictions can be put in place there but other parts of Paro which are not impacted can go back to normal following COVID-19 protocols.
The minister said that in terms of getting the COVID-19 vaccine there is a Royal Command to get it at any cost and so budget will be prioritized and they will buy it whenever it is available.
In terms of the funds inflow from donors the minister said that there is good solidarity from the donors and the largest donor is the GoI. Lyonpo said the government is experiencing the most expeditious flow of funds ever from developmental partners who are very accommodative and supportive.
The minister also said that domestic borrowing in the form of Nu 3 bn in bonds and Nu 3 bn in T- Bills will help the economy as the government will take the bank deposits and invest them through the budgetary process that will help the economy.
On the picture beyond the 2020-21 financial year budget the minister said he is optimistic and that it will not be as bad as this financial year.
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