The Nu 5 bn Economic Stimulus Plan which was recently submitted by the National Level Task Force to the government is currently under discussion in the first round of Bhutan-India Development Cooperation talks along with discussions on aid for the 11th plan. The talks are from 15th August to 17th August 2013.
Finance Minister Lyonpo Namgay Dorji said, “The recommendations of the task force on the ESP are being discussed in the plan talks between the two governments as the ESP will be a part of the 11th plan period.”
He said once the plan talks are over and they have the confirmation of support from the Government of India then it would be discussed in the cabinet before it is finally incorporated in the budget.
The proposed ESP plan submitted by the seven member task force has made some minor changes and improvements but in essence is similar to the draft ESP first submitted by a committee headed by MP Leki Dorji to the government.
It still talks of injecting Nu 4bn into the banking sector to restart lending to productive and priority sectors and keeps Nu 1 bn as part of its subsidies given under the Special Support Schemes.
Underscoring the need for ESP the proposed task force report says, “Without such an ESP, the economic may undergo further strain the consequences of which may be severe and take years to stabilize.”
The main objectives of the ESP are to inject liquidity into the financial institutions to facilitate access of funds to the private sector, ease the rupee situation and improve the balance of payment position and provide special support schemes for greater socio-economic benefit.
The report says, “The liquidity injection will enable the financial intuitions to restart lending and provide the necessary boost to the productive sectors prioritized by the Government. The channeling of rupee liquidity in the financial system will allow the RMA to address part of the current rupee shortage and reduce its rupee borrowing and associated costs.”
On the financing of the ESP the report says, “There is a profound trust and expectation in the country that the GoI will finance the ESP with a rupee grant of 5 billion over and above the 11 FYP assistance.”
Liquidity injection of Nu 4 bn
In order to enable the financial institutions to lend, Nu 4 billion will be provided in the form of equity infusion, long-term deposits/bonds, revolving fund for targeted lending and fund for Micro Finance Institution (MFI) to promote financial inclusion in rural areas.
In response to a question the Finance Minister said, “Banks cannot lend as they wish as the lending will be prioritized. When we give the money we will be working with RMA on the lending modality to suit the economy of the country.”
The distribution of ESP will be carried out according to assessment of loan portfolio, balance sheet size and growth rate.
Of the 4 bn there will be an equity injection of Nu 1.5bn. Here the report says the FIs are constrained by low capital base that can be strengthened through capital infusion. About 38% of the Nu 4 billion has been proposed for enhancement of capital of the FIs in the absence of adequate liquidity in the domestic market.
Nu 1 bn will be put in as long term deposits for the banks so that banks will have a strong long term deposit base to finance long term projects.
Nu 1.4 bn will be a revolving fund for targeted lending for collateral-free lending to viable projects at concessional terms in order to direct lending towards targeted priority sectors.
The Indicators of success that the government will look at for the above will be number of projects approved, loan amount disbursed, numbers of jobs created and import substitution and export promotion.
A Nu 100 mn Micro Finance Institution fund will be created as a wholesale fund for micro finance to provide access to credit and financial service in the rural areas to improve rural livelihoods.
Here the indicators of success will be numbers of new rural clients served and numbers of loans sanctioned.
The implementing agencies will be financial institutions and relevant agencies within and outside the government.
The report says that Nu 4 bn will be for lending to productive economic activities that will promote youth employment, cottage, small and medium enterprises (CSMEs), entrepreneurship and start-up business, agro-business, import substitution, construction/housing, green business development, women empowerment among others. Based on the priority sectors identified by the Government, the relevant agencies shall submit the specific activities to the Economic Advisory Council (EAC).
Nu 1 billion in Special Support Schemes
The proposed ESP report of the taskforce has made some major changes in the Nu 1 bn subsidies which have now been renamed as the Special Support Schemes.
The unemployment benefit for youth has been increased from Nu 300 mn in the earlier draft report to now Nu 550 mn constituting the largest part of the schemes. However, the Nu 250 mn proposed as subsidy for free electricity for rural areas for up to 100 units is no longer there.
Guaranteed employment Support Scheme for the youth: Nu 550 million
To provide employment to out of school youth till they are gainfully employed, employment will be guaranteed. A guaranteed employment scheme with Nu 3000/- per month for ten to twelve months will be provided to meet their basic needs.
This fund shall also be used to provide skills, knowledge and related trainings to prepare the youth for gainful employment. There are more than 7,300 unemployed youth. With an estimated 50% of the youth from the low rural income group, the financial implication is estimated at Nu 550 million for the plan period. The indicator of success would be the number of youth employed.
Subsidy for higher education expenses: Nu. 150 million
The draft report says that providing education is the top most priority of the Government and the Government plans to establish three new colleges in the east to cater to the increasing number of students passing out of the schools. Till such a time the institutions are established, the Government would provide subsidy for pursuing higher education in Bhutan and in India to those who do not qualify for regular scholarships. On an average the report estimates that more about 500 students will be availing education loans for which the interest subsidy will be at least Nu.30 million per annum. For the plan period, the subsidy on account of education will be about Nu 150 m. The indicator of success will be the number of education support provided.
Senior Citizens Support Scheme: Nu 300 million
In order to help senior citizens to live a dignified life post retirement, support for monthly living allowance will be provided. There are around 22,000 septuagenarian citizens. Based on support for fifty percent of the septuagenarian citizens, Nu 60 million per annum will be required. This allowance will be extended to only those without post retirement benefits or steady source of income. It is estimated to cost Nu 300 million for the plan period. The indicator of success would be the numbers of senior citizens supported.
Plan of Action
As part of its plan of action the Government is committed to implement the ESP within its first 90 days. Consequent upon receiving the grant of Nu 5 billion, the implementation will be carried out immediately. The plan of action, supported by an implementation and monitoring framework, will be carried out in two separate interventions namely liquidity injection and special support schemes. To initiate the ESP for maximum impact, the entire fund committed for ESP is solicited for upfront disbursement.
To ensure complete transparency and accountability, ESP activities will be executed and closely monitored by the Prime Minister’s Economic Advisory Council (EAC).
The Economic Advisory Council shall be responsible for overall monitoring and evaluation of the ESP. The agencies responsible for implementation of the activities will submit progress report on a monthly basis to the EAC. The EAC will evaluate & review the progress and submit quarterly and mid-term reports to the Prime Minister.
The Royal Audit Authority shall carry out periodic audit of the accounts and submit them to the Government. Reports will also be sent to the National Assembly’s Public Accounts and Private Sector Development Committees. Annual progress report and audit report will be submitted to GoI by the EAC. The assessment of the impact of the ESP will be carried out by the end of the 11 FYP.