In response to a question by a reporter on the poor state of the economy, the Prime Minister threw back some questions of his own to the media gathered for the last meet the press.
He asked the reporters gathered there if any of their friends and relatives lost jobs, if they had stopped consuming less, if they were no longer driving, if they had lost their homes or could not afford them, if they received less care, if farmers had complained and so on.
This reply by the head of the government presiding over a period of unprecedented economic hardship gives an indication of the government’s limited view and grasp on the realities of the current economic crisis.
Ironically the Prime Minister was asking this question to a sector of the economy that is a perfect example of the impact of the rupee crisis and the credit crunch.
Due to unprecedented cutbacks by the government including the advertisement sector media houses have suffered greatly over the last one year. On an average most newspapers and media outlets have lost 60 to 70 percent of their staff in the last one year. The situation has been made worse for those selectively targeted for critical reporting.
Many people (including some relatives of reporters) have lost jobs in the last one year especially in the private sector.
The lack of rupee in the economy apart from deflating the Ngultrum by 10 to 20 percent in border areas, pushed up inflation on goods imported from India and made trading more difficult for Bhutan’s 30,000 business license holders.
The rupee crisis combined with its off shoot, the credit crisis has had a devastating impact on the Bhutanese economy.
The large construction sector like most other sectors have been hit by the twin effect of reduced government spending depriving them of business, and credit restriction that does not give them rolling money to do business.
Bhutan’s import community has been virtually obliterated by import restriction methods that have had no impact on restricting rupee imports.
Architects, consultants and hardware stores are suffering as they are dependent on the construction sector and also government jobs.
Generally most private companies and small businesses are suffering due to reduced business which is a matter of concern as the private sector is Bhutan’s second largest employer after farming.
Medium and bigger size businesses who contribute the chunk of the tax revenue are also facing hard times and are shutting down, reducing in size rapidly or are unable to expand due to the lack of credit in the economy.
The farmers are affected directly because the rupee crisis caused inflation has made food imported from India more expensive. This is relevant because most Bhutanese farmers produce at a subsistence level, and buy other imported food products. Furthermore, most rural incomes are supplemented by urban income which due to the rupee and credit crisis has come down and so people are sending less money in the rural areas.
Also, due to the current state of the economy the large numbers of educated youth coming from rural areas are unable to find jobs and hence support their rural parents.
One would imagine that civil servants and government corporate employees would not be affected by the rupee and credit crisis. However, they too are affected as most of them will be unable to get credit for various purposes including educating their children outside, building their dream house, buying cars etc. The deflation of the Ngultrum compared to the rupee also affects their buying power.
The long term nature of the rupee and credit crisis and the worsening economic data will ensure that the government and corporations cannot give pay hikes for a long time in the future to ensure that their professional salaries are in tune with record inflation levels.
The larger macro economic data is also very troubling.
By 2014-15 Bhutan’s rupee borrowings is expected to jump up from the current Rs 21 bn to Rs 38 bn and the trade deficit of Nu 20 bn today is expected to double to Nu 42 bn.
The worsening economy and the unpredictable and unprecedented rise in the cost of hydro projects with large loan components and possible delays also are indicators that we cannot solely depend on hydro projects alone.
The only section of the economy that has escaped unscathed is the tourism sector. However, in tourism too the numbers of tourists are lower than last year.
One section of the economy that is doing extremely well under this government is a few well connected business houses that are either related or close to those e