The country’s economy is on a sound footing and any new government that comes in will enjoy huge economic growth, was the message sent out by the government during the last and 25th monthly ‘meet the press’ session on Thursday.
This was in response to a question asked by The Bhutanese on how much the next government would be able to resolve the current economic situation which includes the Indian Rupee (INR) shortfall, trade deficit and credit crisis among others left behind by the incumbent.
Government stands its ground
The cabinet cited economic indicators such as economic growth, decrease of unemployment rate, increased credit growth, investments in hydropower and increase in internal tax revenue.
Finance minister Wangdi Norbu said the assessment that the “economy is in shambles” is wrong because most of the macroeconomic indicators are very good. He said the government has all along said that the INR issue is not a major one.
“We had INR problem but we didn’t have overall reserve problem. We go by the months of imports that are to be covered by our reserves. Our total reserves are sufficient to cover more than one year’s essential imports as is the constitutional requirement.”
“I think for the next government, the prospects are very good. Many of the hydropower projects will come on stream along with others industries,” he added.
Economic affairs minister Khandu Wangchuk said the Druk Phuensum Tshogpa (DPT) government coincided with the global economic meltdown. “In addition we have our own inherent difficulties. We cannot be totally insulated from what is happening across the world. Despite this we have registered impressive economic growth.”
There has been a GDP growth of over 9% in recent years and credit from financial institutions grew from about Nu 22bn in 2008 to Nu 54bn in 2012. There has been huge increase in trade licenses issued and value of corporate and business taxes.
Lyonpo Khandu said this was a clear indication that all economic sectors are receiving adequate financial assistance and that there is huge economic growth for businesses to invest in.
Lyonchhen said international experts like “IMF and ADB have said the Bhutanese economy is on a sound footing. Despite the global economic meltdown we are projecting a minimum of 8% economic growth in the 11th five year plan.”
Lyonpo Khandu said “what we are leaving behind is a very strong legacy. We have laid Very strong fundamentals. What the new government can enjoy is higher growth rate because of policies, investments and strategies we have adopted. All in all, the economy has never been this strong.”
INR borrowings, trade deficit and the credit crisis
The cabinet however did not elaborate on the increased INR borrowings and the consequences of rapid economic growth rate, credit growth and investments into projects such as the hydropower.
Local economists The Bhutanese talked to opined that the economic growth brought about by the government was not uniform and it was the main reason that caused the INR and credit crisis. “GDP will increase but at the expense of huge external debt,” a local banker said.
The primary cause of the adverse balance of payment and the INR situation as pointed out by various studies is the excessive credit growth and investments in hydropower. A Bhutan chamber of commerce and industries (BCCI) report states the INR crisis will get worse in coming years and the hydropower constructions will be a major factor.
As a result, GDP will automatically increase owing to huge investments taking place and increased credit lent out by the banks. However, investments are all made from borrowed money and the growth rate did not account for the liability that keeps growing.
In fact the BCCI said that with the present rate of development, not only would the INR shortfall get worse it would also threaten all other major economic sectors in Bhutan.
In another two years, the country’s import will surpass exports by Nu 42bn, according to a projection made by the finance ministry in their national budget report 2012-13. This is double the trade deficit the economy is experiencing today. The deficit, taking account of only trade in goods and services between Bhutan and other countries today, is recorded at Nu 20bn.
This means, to finance the imports, the economy will be required to make borrowings, which has been projected by the same report at INR 38bn, after discounting for loans, grants and other capital transfers. Today, borrowings had reached INR 21bn which is double the annual hydropower returns.
Lyonchhen said indebtedness cannot be avoided while an economy is in its progressing phase. The currencies of these developed countries are in demand in the international market and excess money can therefore be printed to pay off liabilities should there be any need.
“Our debt levels are assessed by the international experts from IMF, ADB and world bank as sustainable and as being within sound levels. It’s a responsible government. In the 11th five year plan, we are setting very clear targets as to how much of the capital expenditures in the plan will be met from internal revenue, bringing down borrowings or assistance from outside,” Lyonchhen said.
“By the year 2020, we will have become self reliant with or without the 10,000 MW,” he concluded.
Meanwhile, the private sector has been the worst hit by the current economic situation. Some have closed shops while some resorted to retrenchment ever since a ban was imposed on vehicle imports and an indirect freeze on vehicle and construction loans by the central bank in March last year.
BCCI president Ugen Tshechup Dorji said it is wrong on the government’s part to say that there is no problem with the economy. “From the many studies carried out by the chamber and from the several meetings held between the government and the chamber, it has shown that there are major issues and that the private sector or people are suffering. So, if the government feels otherwise, they should be in a position to justify their statement by sitting down with us and convince us, which they failed to do so,” he said.
The Chairman of Zimdra Industries, Ugen Tshechup Dorji, earlier said they tried to keep the employees as long as they could. With the indication they were getting from the government that the ban would continue they had no option but to let the employees go.