The most important part of the State of the Nation (SOTN) address of the Prime Minister focused on the economy. The PM earlier tweeted “Have decided to cover as many areas as possible in SOTN, but most time will be spent on the economy and economic growth for self-reliance.”
The Prime Minister while admitting that the country’s economy was weak and vulnerable highlighted the government’s initiatives and plans to help strengthen the economy. He said that the government would focus and further develop and enhance the five jewels of Hydropower,
Agriculture, Tourism, Small and medium enterprises and Mining to ensure self reliance.
The PM also announced nine specific measures to strengthen the business environment in Bhutan that would in turn support the five jewels as well.
Lyonchhen said that both the Economic Development Policy 2010 and the Foreign Direct Investment Policy 2010 were being reviewed.
He said that as part of the government’s commitment to improving Bhutan’s Ease of Doing Business ranking from 141 out of 189 countries to the top 100 in two years each minister has been assigned one specific area to improve the regulatory environment and make doing business in Bhutan easier.
The PM stressed that the government service has to create a more business friendly environment.
To support the private sector, the government has decided to establish the Better Business Council which will have representatives from government and private sector. The Council is chaired by the PM and will meet every month till the Private Sector Development Plan is finalized and implemented.
An important issue which has been dogging the private sector is the lack of credit. In this regard the PM assured that access to loans for businesses will be improved in cooperation with RMA. In this connection, the government said it has already release Nu 2.1 billion from Economic Stimulus Plan to the Banks. Furthermore, the government would start special savings scheme to encourage people to save and is also working on improving the stock market.
The government will also be giving importance on key infrastructure like expanding and improving the Thimphu-Trashigang highway. He assured that all highways will be upgraded and maintained and even the blacktopping of gewog center roads would start soon.
The PM mentioned that Paro airport is being expanded and upgraded to international standards. The management of the airport would be made autonomous, and the airport renamed Jigme Singye Wangchuck International Airport to celebrate the 60th Birth Anniversary of His Majesty the Fourth Druk Gyalpo. Meanwhile the Younphula airport is also being expanded and improved to make travel to the East easy and safe.
The network connectivity is being upgraded. The international bandwidth speed is 5.2 Gbps, which the government is ready to double if needed. The government is also working on bringing in network redundancy through Bangladesh.
The Prime Minister has also stressed that inflation needs to be controlled calling it the main obstacle to economic growth. “It is important that RMA and the government work together to address this. The government has formed a task force in the Ministry of Economic Affairs to fight inflation on a full-time basis,” said the PM.
The address also focused on the need to use local products wherever possible and reduce dependency on imports. He said Bhutan’s fuel imports were not sustainable. The PM said the only way to reduce fuel imports is by reducing number of vehicles and by using electric vehicles. “We must do both increase the taxes for fuel cars but also increase public transport, and support the use of electric cars. The total number of taxis in Thimphu is 2,600. If half of these are electric vehicles, it would reduce petrol imports by Nu. 235 million per year. Imagine how much money we can save,” he said.
The PM said that Bhutan’s economy which virtually imports everything is not sustainable. He said that structure of the economy must be changed producing some goods domestically and add value to exports through primary, secondary and tertiary processing.
A Macro Economic Picture
According to the SOTN Bhutan’s debt about Nu 106 billion which is 102% of GDP. The foreign currency reserves are at US$ 895 million but Bhutan is still vulnerable to a rupee deficit. There is still a trade imbalance of almost Nu. 20 billion and current account deficit is 30%. The PM said that inflation is high very high at 11.3% and that youth unemployment in unacceptably high for a small country. Latest figures show that though unemployment is 2.9%, youth unemployment has increased from 7.3% to 9.6% in 2013.
The Five Jewels hydropower
The PM said that the government has received interest from the private sector to develop hydropower projects. “We will encourage them as we need to optimize our comparative advantage in the hydropower sector,” said the PM in another major policy departure from the previous government.
The PM said that the increase in Chukha tariff would mean an increased Nu 450 mn a year in revenue. He said that the delayed Punatsangchu I project would be completed by June 2018 after some delays.
Construction work on the 600 MW Kholongchu hydropower project in the east is ready to begin this year with the foundation stone for the project having been unveiled by the Prime Minister of India.
Other projects would be fast tracked by both governments. The government has also requested DGPC to start two new companies: a hydropower construction company and a hydropower consulting company probably by this year. Meanwhile the 126 MW Dagachu project would be commissioned from next month. Several other projects have also been approved.
To strengthen agricultural production the government has decided to strengthen Chab-ney-sum, the strategy to increase production, access and marketing.
It would involve increasing production by improving irrigation, agro processing and in supporting small agro-processing schemes. The PM said that the government would work with the BOIC to ensure that ideas, training and money is made available for young school leavers to encourage them to take up agricultural activities.
The government would work on improving access by making investments in mechanization as well as in improving the road networks to connect to the market. The PM said that the government would provide equipment to build new farms roads to the dzongkhags. Equipment will also be provided to make sure that existing roads are operational.
In terms of Marketing, the government is upgrading and expanding Food Corporation of Bhutan to buy farmer produce. Moreover, the government has directed FCB to look at guaranteed buy back for certain food items.
The past year saw progress in terms of attaining vegetable self sufficiency. The country produced 2,822 MT of vegetables with export value of Nu. 53 million, which was 35%, increase over 2012 production.
The number of tourists visiting Bhutan has been steadily increasing. Last year, 116,200 tourists visited Bhutan. Of them, about 63,500 tourists were from India, and 53,000 were from other countries. Tourism contributed Nu. 16.2 billion to the economy and Nu. 1.1 billion to government revenue. In addition, tourism provided 18,200 jobs, from the guides and drivers who accompany the tourists to waiters and cooks working in hotels.
The government is working on increasing tourism numbers by promoting discounted off season packages, improving road side amenities and also promoting domestic tourism.
The government has decided to make 2015 the “Visit Bhutan Year” to celebrate the 60th Birth Anniversary of His Majesty the Fourth Druk Gyalpo. Several new products would also be launched.
Small and Medium Enterprises
Bhutan has about 13,000 cottage and small enterprises comprising 97% of all the businesses but they contribute only 3% to the economy, and they are concentrated mainly in Thimphu, Phuentsholing and Gelephu.
The PM said that the government’s target in the 11th FYP is to double the number of small enterprises so that they contribute at least 10% to the GDP and create 21,000 additional jobs.
For this the government has developed an action plan to, expand small enterprises throughout the country, but especially in the East, BOIC will implement Nu. 1,900 million to develop small enterprises and various training will be provided to prepare school leavers.
Of the five jewels focus on mining seems to be a departure from the previous government’s policy of discouraging mining. The PM announced that a State Mining Corporation would be formed with the purpose of exporting minerals to India and Bangladesh. The revenue from this will be used to finance the school reform.
The PM said that Bhutan has abundant minerals and the quality and quantity of limestone, marble, dolomite, gypsum, talc, quartzite available here is higher than the region. But mining contributed only Nu. 2,000 million to the economy last year which is less than 2% of the economy. The contribution to the government revenue was only Nu. 434 million.
Lyonchhen pointed out that the mining sector has immense potential to increase economic opportunities, increase jobs, generate more revenue not just for the government but also for local communities.
He said a Mineral Development Policy is under consideration by the government to provide strategic overview and direction to the mineral sector and to ensure that mining has minimum impact on the environment and local communities.
“Collectively, if we work hard at strengthening the five jewels of the economy and improve the business environment, then I am sure that we should be able to double or even triple the GDP in the next 5 years, making self-reliance a distinct possibility in the near future”, said the PM.