Rising Inflation

Though the government through official figures has shown high GDP growth rates and lower poverty rates there has not been adequate focus on inflation which can negatively impact both of the above.

A troubling overall trend in the last five years is the strong rise of inflation in Bhutan which has hit household budgets hard. For instance inflation which stood at 5.15 percent in 2007 is now 10.93 percent in 2012.

Due to inflation the same Nu 100 in 2008 can now only fetch Nu 75 worth of items in 2012, and if the unofficial rupee to ngultrum parity of 10 percent prevalent in border towns is included then it falls down further to Nu 65.

Inflation should be a concern for Bhutan because high inflation rates can negate high growth rates and also reverse the achievements of poverty alleviation by pushing back people,  just above the poverty line, to below the poverty line.

Economists says that high inflation means higher poverty levels due to reduced purchasing capacity of the poor and in the long run it lowers growth rates.

So far a common refrain has been that Bhutan’s inflation is imported and so the government can’t do much. However, a new study by the National Stastical Bureau has shown that the majority of our inflation is created by domestic goods and services. These include areas like rent, services, electricity etc.

In all the above cases the government through policies and programs could have curtailed inflation to some extent. For example most Bhutanese spend the majority of their income on rent and food which combined can make up to 60 percent or more of the monthly expenditure.

However, the government has been a bit late in promoting domestic food production with mixed results and at the same time there has been little or no effort to control sky high rents, often increasing in violation of the toothless Tenancy Act.

There are some who feel that the government’s data collection on inflation  is not able to reflect the actual rates of inflation which are much higher.

This is not because the National Statistical Bureau is fudging figures but because their Consumer Price Index basket may be having items irrelevant to most Bhutanese consumers.

At the Centenary Farmers market the same Nu 1,000 had to be increased to Nu 1,500 to Nu 2,000 to get the same amount of food items in a period of less than a year.

Therefore, some experts say that since the NSB consumer basket is so big it is unable to adequately reflect how Bhutanese household budgets are taking a much bigger hit then shown by official figures.

Also another major indicator and cause of inflation is house rent. Apartments that where available in Thimphu and Phuentsholing for Nu 6,000 or Nu 7,000 around three or four years back are now being rented out at Nu 10,000 to Nu 15,000.

One of the major causes of inflation in Bhutan’s context, which is also accepted internationally, is the unprecedented flow of money into the economy due to the large size of the tenth plan and also the ongoing hydro projects.

Until recently this had been further bolstered with the aggressive lending spree of banks and highly consumerist patterns of Bhutanese consumers in the face of inadequate monetary and fiscal policies.

What made it worse was the lack of our own productive capacity to produce many of the basic items of import here in Bhutan like charcoal fuel, vegetables, fruits etc.

So while inflation in Bhutan’s context was also due to international factors, developmental projects and economic projects the government must also take responsibility to a certain extent for not coming out with enough fiscal policies and not enhancing the productive capacity of the Bhutanese economy.

The Royal Monetary Authority could also have done more on the monetary policy front to restrict cash flow from the banks.

Contrary to some perceptions in Bhutan we should be concerned about inflation in Bhutan and we have the means to control certain major aspects of it mentioned above. We should be concerned because the poorest sections of society are often hit the hardest especially the urban and rural poor who eke out a living through limited means.

Also food inflation hits our farmers hard as most of our farmers are subsistence farmers who depend on a single crop and often most other food items are purchased by them from the market. Inflation will also further hasten the growing gap between the rich and the poor in Bhutan.

What has added to the problem is the ongoing rupee crisis which has unofficially devalued our Ngultrum by 10 percent adding to the inflation burden.