State of the Nation’s Economy

Though the state of the nation in the last five years may be divided into four pillars and elaborate sub sections, but ultimately the two most important issues are rural development and the state of the economy.

On the rural development front, the numbers on minimum programs like farm roads, rural electrification, water supply and mobile connectivity show that the government has achieved the majority of its targets.

The bulk of the tenth plan in fact comprises of such minimum programs and infrastructure projects most of which are either online or have been completed.

There are many in the GNHC or Planning Commission who say that this plan period has seen the highest level of achievements and targets completed.

With the upcoming elections there are many who predict that the above will be enough to win the 2013 race especially since the vast majority of voters and constituencies fall in the rural areas.

However, the potential spoiler for DPT’s chances is the current state of the Bhutanese economy.

While it is true that Bhutan was the fourth fastest growing economy in the world in 2012, the nature of the growth has mainly been a jobless growth which has  worsened our rupee and credit situation.

Even prior to the tenth plan Bhutan’s growth figures have even been the highest in the world touching double digit figures when Hydropower construction projects like Chukha and Tala were at their peak construction period as billions were poured into mega construction projects.

The same trend is repeating itself in the recent years as hydro projects whose construction costs even exceed the 10th and 11th plans combined start their construction process.

However, as any Bhutanese contractor or economist will explain, the bulk of the construction projects which comprise up to 95% of the total outlay is taken by Indian companies. So while our GDP figures may shoot up due to the activity it does not record all the spectacular sums of money and profits that go back to Indian construction companies. Even the bulk of the jobs high and low are done by laborers from India and Bangladesh which will again lead to rupee being remitted out. All that stays back in Bhutan during the construction phase is the high GDP figures.

Another reason for high growth is the unprecedented amount of developmental activities being carried out in rural areas which are mainly social welfare oriented.

However, the downside to this is various examples of countries in Latin America and Africa who have enjoyed high growth rates while carrying out populist developmental projects. However, these economies subsequently have suffered either due to high debt, inflation, cost of maintaining these projects and lack of revenue as capital was not invested income generating activities. In short a Nu 10 mn farm road may connect 20 or 30 households but it is highly unlikely that the households can ever generate enough economic activity to even maintain the farm road leave alone let the farm road pay for itself.

So while on the positive side Bhutan’s economic activities in the last five years have generated high growth rates and also created social welfare schemes but the negative is that these have been jobless growth with most of the economic benefits flowing across the border due to our import dependent economy.

One sign that our economic growth is not paying us the right dividends is the rupee crisis and the credit crunch.

These twin crises show that most of our growth is consumptive and not productive in nature. Our growth no matter how spectacular cannot even insure that we have enough money to finance our imports. In many ways Bhutan’s essential imports are being financed through money that we don’t even have in the form of multi-billion rupee loans.

The low unemployment figures are both pointless and suspect at the same time. They are pointless because the largest segment of our population which is the youth suffers much higher unemployment rates indicating that very little new jobs are being created. The employment figures are suspect because unemployment figures can’t go down when companies are laying off staff, the government is cutting cost and a majority of graduates can’t find jobs.

The government’s best economic and revenue performer which is also a justification for McKinsey is Bhutan’s tourism sector ,which on paper has exceeded all targets. It must be acknowledged that real structural reforms in this sector has lead to a respectable growth in the number of tourists coming to Bhutan. This has resulted in more tourism jobs and also foreign currency revenue. However, at the same time the performance is not as dramatic as it is being made out to be. A large number of the increase in tourist’s numbers is simply due to the change in definition of who is a tourist. Earlier Bhutan only recorded dollar paying third country visitors as tourists but now any foreigner including the large number of South Asians who visit Bhutan for multiple purposes and travel on Druk Air are registered as tourists.

The government early in its term launched ambitious economic policies like the Economic Development Policy, more liberal FDI laws and etc. However, FDI in Bhutan if compared to the regional or international context has been a failure. Also despite the numerous sops and incentives in the EDP, industries and small businesses are unable to take off. The overwhelming feeling in Bhutan’s shrinking private sector is that they are still not being given the right support and importance by the government.

The government has also failed to implement specialized and commercial agriculture concepts like one Gewog three products which if properly focused on had the potential to revolutionize agriculture in Bhutan. Storage, coordination and transportation problems have even limited the success of the vegetable substitution program.

The government’s ambitious Nu 285 mn IT Park has failed to take off with most of the commercial space vacant and even two small investors already encountering losses. The government is pumping in more money to keep the park afloat but the future remains uncertain and bleak

In what could even be bigger white elephant the government has pumped in under Nu 500 mn not to mention 1,000 acres of land into an Education City project which has high social and environmental costs but limited financial benefits if any.

The state of the Bhutan’s domestic airways which could have boosted our tourism products and eased transport has been a comedy of errors requiring extra costs and delays with questionable construction quality.

Now there are those who still convincingly argue that despite Bhutan’s economic challenges and urban pains a DPT re-election is assured due to its work in the rural areas.

However, there are four factors that should also be kept in mind. One is that runaway inflation especially on food products which could have been produced in Bhutan hits our subsistence farmers the hardest.

Secondly, most rural families depend on remitted income from their urban relatives who have been cutting back due to the current economic crisis.

Third, a large portion of the unemployed youth have rural parents who are seeing their hopes of their children getting a decent job dashed even after all the time and money spent in educating them.

Finally forming around 60 percent of the population and more than 30 percent of the voters in 2013, the Bhutanese youth is out of place and sorts in the current economic environment and system.

Combine all this with the multiple scams, controversies, free speech or press freedom issues and governance issues ; the state of the 2013 Electoral race becomes an infinitely more complex and unpredictable one.