The Bhutanese Leading the way.
The biggest hit of COVID-19 has been taken by the private sector and so the Private Sector Task Force for COVID-19 which has already played an important role in giving private sector feedback for Phase Two of the relief measures, quite a few of which was accepted and adopted, is working on more recommendations.
The Taskforce is recommending a mix of monetary, fiscal and policy measures.
The Chairman of the Private Sector Task Force for COVID-19, Ugen Tsechup said that the monetary measures are a way forward for the banking sector while the fiscal policies are for the government. He said the task force will also look at low hanging fruits.
To deal with the details, the Taskforce has set up its own subcommittee which will work with a subcommittee of the Financial Institutions jointly called the ‘Joint BCCI and FI Committee’ to look into mainly monetary issues (see separate story on Pg 1).
The Joint Committee’s recommendations or report from the private sector side will also be tabled to the larger Private Sector Task Force for COVID-19 also under the aegis of the BCCI. This taskforce will evaluate the report and is then expected to submit it to the government.
Meanwhile, the taskforce feels that monetary relaxation in certain norms would in effect also assist the banks.
It believes that the interest rate can be brought down further as the current 1 percent rebate for those continuing to pay their loans is not enough.
One idea of the private taskforce is that the banks be given flexibility to defer EMI payments beyond the 21st June 2021 moratorium given through Royal Kidu.
Ugen Tsechup said this flexibility would mean that banks can give a longer deferral.
The other idea is on allowing the banks to extend the term of the loans as there will not be much income generation for another one to two years. Extending the term of the loans would reduce the EMIs and enable people to pay back.
The taskforce feels that certain banks have liquidity issues and it would help if those banks can get a liquidity injection from the Central Banks to be able to give loans.
On the fiscal front the idea of taskforce is if there can be reduction in Corporate Income Tax (CIT), Business Income Tax (BIT) and Personal Income Tax (PIT) with the main aim of encouraging new ventures and even possible FDI investments. The proposal is to also reduce import duties and delay the GST or at least make it conducive.
The Prime Minister said he is not in favour of this (see story on pg 3).
One area is that if the marketing budget of certain sectors of the economy like tourism can be written off under tax deductibles to promote economic activities.
The private sector taskforce also has an idea on liquidating Non Performing Loans (NPL) in a faster way and with some flexibility.
The banks already have high levels of NPL and will see more in the coming times. Currently it is a lengthy process that requires negotiations, court proceedings and auctions.
The idea is to have a liquidation process which is faster and more flexible whereby if the client and the bank agree the bank takes over the property of the person for the value part of the loan to remove the NPL and then returns the excess value.
So if a person has a Nu 15 mn loan with a property worth Nu 20 mn as collateral, the bank could take over the entire property and then return the remaining Nu 5 mn value.
Under this the NPL would be removed from the bank’s books and this would mean that the bank would not have to provision its profits against it thus helping improve its profitability too.
The private sector task force feels that apart from fiscal and monetary measures there could be certain other policy steps which can be taken in the longer run.
In the area of tourism, the idea is that the government relooks at the tourism policy with no minimum tariff apart from the USD 65 Royalty and compulsory tour agents and guides. This would lead to an increase in the volume of tourists and allow different tour packages to be designed. This is also expected to benefit handicrafts and local restaurants.
Another is on reducing the electricity tariff by treating it as a raw material to not only make Bhutanese products competitive with their counterparts, but also make Bhutan a competitive hub.
A proposal is also for the government to promote and support import substitute industries within the country so that they can eventually become competitive and compete abroad too.
In terms of agriculture the idea is to go for economy of scale or large scale operations. The task force said that currently the food produced is not enough to supply outside but is more than required for local consumption.
The idea is for there to be cold chains, technically advanced agricultural green houses, real organic farming and value addition.
The task force feels that low interest loans and even collateral free loans are a must for the agricultural sector to grow.
One idea being considered within the government and mentioned by both the Prime Minister and the Finance Minister is the thinning of forests by selecting drying trees to be the base of a wood based industry. The claim here is that it will both generate revenue and also help keep a healthy forest.
However, here the feeling in the private taskforce is that selective logging is a very expensive proposition and it is of no use if the timber cannot be sold at a competitive price. The preference is, therefore, for clear felling than selective logging.
The government has also put forward the idea of enhancing the export of boulders to earn money quickly. Here the private sector taskforce point is that boulder exports are being constrained as West Bengal only allows a certain amount of weight on its highways and then the customs station between India and Bangladesh have only a limited capacity to process the trucks. The taskforce pointed out various bottlenecks in the boulder business which needs to be cleared.
Again both the Finance Minister and Prime Minister have talked of collateral free loans. The taskforce clarified that the collateral free loans are not being sought for big business houses as they would have collateral, but the focus is on start ups, medium and small scale industries, small, plants, restaurants, shops etc.
The taskforce also welcomed the Finance Minister’s idea of MoF SOEs collaborating with the private sector provided there is banking support to give those private sector companies loans.
On the Finance Ministry’s proposal to increase the debt ceiling on non-hydro debt which is currently at 35% of GDP, the taskforce welcomed it saying that as long as the loans are commercial loans increasing debt makes sense as there is a capacity to pay back.
The taskforce said the danger is more from loans like social sector loans that cannot be paid back.
The taskforce said that one option could be allowing existing factories and plants to double their capacity which is currently restricted due to power available as the government approach is to give new players a chance. The taskforce view is that currently there is not much scope for others to set up new plants due to COVID-19 and so the doubling of existing factories like Ferro Silicone among others would also mean enhanced revenue.
The taskforce also welcomed the Prime Ministers’ four-point formula of businesses that brought about employment, exports, import substitution and new advances like mechanization and digitalization being supported.
A member of the private sector said that there is still some disjointedness as while the message at the higher level is to start activities and things so that people do not suffer the people at the ground level are still very restrictive.
The example the member gave is that at the Phuentsholing gate only 100 trucks a day are allowed in and these are focused on essentials like food and medicine and also raw materials. The member said this means that retailers and hardware store owners’ consignments are stuck in Jaigaon paying ‘killer rents’ of Nu 40,000 to Nu 50,000 per truck load to store it in warehouses there. The fear is that once the restriction is lifted those items cannot be sold due to the prices.
A member of the private sector who took part in the Prime Minister’s meeting with the private sector said the main takeaway was mainly the PM assuaging the private sector that nothing bad is going to happen.
He said that the bright side in the private sector is that grocery stores, hardware stores and certain small industries that cater to the local market are doing well, but all those who require import of raw materials and are dependent on export are struggling.
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