PM points to economic growth despite Rupee and Credit crisis

Though the Bhutanese economy continues to reel under a severe credit crunch, balance of payment issues and Indian Rupee (INR) shortfall, the Prime Ministers state of the nation report said the size of the Bhutanese economy expanded from Nu 55bn in 2008 to a little over Nu 95bn by the end of 2012.

Prime Minister Jigmi Y Thinley, in his state of the nation report on Monday, said “Bhutan enjoyed such sustained economic growth at a time when many other economies continued to perform dismally and even contract, with loss of jobs and record unemployment.” The future for Bhutan looked even brighter, Lyonchhen said.

He referred to the country’s potential to generate enormous energy from the hydropower sector by 2020.  “When all the additional 10,800 MW are realized, it is projected that the country’s GDP at current prices will have grown by 139% from Nu 95.6bn in 2012 to Nu 227bn in 2020, and that GDP per capita will have increased from USD 986.40 in 2012 to in between USD 700 to USD 7,000 in 2020, making Bhutan a truly middle income country,” Lyonchhen stated in his report.

By 2017, annual INR earnings have been projected to be more than 19bn, Lyonchhen said.

For 2012, the International Monetary Fund (IMF) forecast a 9.9% growth and rated Bhutan as the fourth fastest growing economy in the world.

He said, the GDP per capita for the period shot up 59% from USD 1,874.5 in 2008 to USD 2,986.4 in 2012, bettered only by the Maldives in the whole of South Asia. According to the government, these economic trends enabled the sharp reduction of the poverty rate from 23.2% in 2008 to 12% today.

Lyonchhen in his report noted that the 10th five-year plan which coincided with the DPT government’s tenure kicked-off with a budget of over Nu 148bn, later revised to Nu 150bn, which is bigger than the 9th plan by 114%. This outlay excluded a separate investment of over Nu 101.90bn for the three hydropower projects (Punatsangchu I and II, and Mangdechu), and Nu 2.02bn for Chiphen Rigpel universal IT literacy and competency project.

He said there were daunting challenges and these included the balance of trade and payment issue which gave rise to rupee shortage, and serious social issues stemming partly from high rates of rural-urban migration, including youth unemployment and increasing crime, alcoholism and substance abuse.

“We are still classified as a “least developed country” and have yet to achieve the Millennium Development Goals (MDGs) fully,” the Prime Minister said.

It was imperative, he said, to fuel and sustain a high level of growth to achieve self-reliance through just and equitable growth, and fulfill the commitment to eradicate poverty while external development assistance was still available and predictable.

“Slow economic growth for Bhutan would have translated into a prolongation of the pains and suffering of poverty for almost a quarter of our population who lived below the poverty level when the DPT government took office in 2008,” he said.

“It would have meant generation of fewer jobs for the waves of expectant youths flowing out of schools, training institutions and universities. It would have meant allowing the gap to widen intolerably between the rich and the poor, the urban and the rural.”

The Prime Minister said the aim of the DPT government was to achieve a high growth rate of 9% and create the macro-economic conditions for Bhutan to become self-reliant by 2020.

However, the economy is still suffering a credit crunch and the continued INR shortage. Lyonchhen said the external imbalances will begin to be corrected within the year but he didn’t mentioned any specific dates by which the restrictions imposed by central bank to ease the economic situation will be lifted. Since March last year, the central bank froze housing and vehicle loans and import of unessential items has been banned among other restrictions as an interim measure.

The country’s total debt as of December 31, 2012 has touched Nu 78.65bn which accounted for about 78.4 percent of the country’s GDP as reported by the finance minister to the parliament.

The National Council during its last session held the Central Bank and the Finance Ministry accountable for the current economic situation and resolved that appropriate action must be taken against the two institutions.

Among many other recommendations, with the present government’s tenure almost winding up, the council resolved the cabinet secretariat, that would remain even after the government and the parliament dissolves, be responsible in fixing accountability on the two institutions.

“There were no well planned actions but reactions to the crisis,” chairman of NC’s economic affairs committee councilor Rinzin Rinzin has said.

The committee’s review on the INR shortfall states that Central Bank had access to all the data and trends of the economy’s rupee borrowings since a long time ago, but the issue was never accorded due consideration in any of its board meetings.

The central bank is responsible for monetary policy and the finance ministry the fiscal policy. NC Rinzin Rinzin pointed out lack of coordination between the two. The government’s attempt to raise taxes as part of a fiscal measure also drew criticism from NC members.

When asked for his comments on the NC’s resolution, Lyonchhen during the recent press meet refrained from making any further comments saying the directives that the NC gave was to the Cabinet Secretariat.

“The government is at the end of its term and that is when the NC took its decision and passed the resolution. They made it very clear that this did not concern the current government. And because it does not involve us and because the parliament has concluded so, I don’t want to make any comments,” he said.

However, the NC report touches on mainly the time period of  this government’s tenure and its inability along with the RMA to deal with the rupee crisis.

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