challenges and recom mendations in implementing the ESP

Almost all aspects of the Nu 5 bn Economic Stimulus Plan has been debated whereby Nu 4 bn will be given as loans through Financial Institutions while Nu 1 bn will go into subsidized special support schemes.

However, there has been little focus on the anticipated challenges in implementing the ESP and also on the recommendations to make its implementation a success.

The detailed government report on implementing ESP titled “ESP Implementation Strategy” highlights both the keys areas that needs to be taken care of.


The report says that the giving subordinated debts of Nu 2.1 bn to the banks is expected to ease and improve access to funds within lending norms but it says that the ongoing credit problems will not be greatly relieved.

It says, “Considering the huge expectations from the ESP, there is a possibility that criticism may arise from the fact that FIs may not provide loans beyond their lending norms.”

The report says that the ESP is not intended to be a silver bullet to solve all economic problems of Bhutan but aimed at supporting activities that will provide an impetus to re-invigorate the economy through injecting liquidity in the financial system.

“Left on its own and without accompanying fiscal and monetary measures and support, the ESP may risk being an ineffective initiative,” says the report.

The sustainability of Nu 1 bn Special Support Schemes like education loan, senior citizen pension etc is an issue with the report saying there is a need to ensure it has long term sustainability, and it also says that the scheme should ensure the identification of genuine beneficiaries of the scheme. Already the Ministry of Labour and Human Resources has indicated that the pre-employment guarantee scheme will not be implemented as per the ESP report since the amount required is much larger.

The report says that there is likely to be overwhelming response from unemployed youths, farmers and entrepreneurs to tap the Nu 1.9 bn revolving fund. It says questions will invariably rise about the equitable distribution of these resources. On the other hand it is pointed out that there may be challenges in getting viable projects and promoters to tap the funds.

It points out that given past experiences there are concerns on the likelihood of high failure rate of such ventures. Past experience shows that entrepreneurs lack the necessary business and management skills. It says that without adequate skill building and backup support it could result in a high mortality of start up businesses initiated under the ESP.

The report says that concessional interest rates may potentially lead to an artificially high demand for such credit accompanied by credit diversion or creative refinancing of pre-existing activities. It says due to dilution in collateral requirements the recovery process would be more difficult and subject to higher risk.

A key beneficiary of the ESP is supposed to be Cottage and Small Industries (CSI). However, the report says that there is a lack of integrated approach

towards development of CSI in the sense that finance is not the only essential input and must be supplemented by other relevant inputs and support such as developing adequate business and basic infrastructure, improving human resources, rationalizing tax policy and etc.

The National Council in its earlier recommendation on the ESP had advised that it be kept as the last ESP since in the future it could be misused by political parties and in the process endanger national sovereignty.

The report says that ESP activities may generate increased expectations of the public in the future for similar packages with the risk that it could engender an impetus or a platform for future public institutions and leaders to envision and implement such plans in addition to normal developmental activities.

It also says that one challenge would be possible delay in implementation due to involvement of CSOs, NGOs and other institutions.

Recommendations to meet Challenges

“In view of the challenges that are foreseen during the implementation of ESP activities the ESP Task Force submits the following recommendations,” says the report.

The task force says that Credit has been growing rapidly over the years and any deterioration of asset quality takes time to materialize. “Therefore, it may be prudent to assess the current credit risks and make a true review of NPLs. As such FIs need to undertake a comprehensive review of their loan portfolios, identify where internal procedures are lax and commit to a plan to prevent the deterioration of loan assets,” says the report.

The report says that relevant agencies and other ministries may review the existing economic (fiscal and monetary) policies and regulations that currently do not enable a conducive business environment. It recommends a National Level Task Force may

be created to address this review immediately.

It recommends that subordinated debt of Nu 2.1 bn be injected first into FIs and accelerated through a process of direct placement rather than through the normal process of floating bonds.

The report recommends that the Business Opportunity and Information Center should support CSI and non-formal rural activities in indentifying viable projects and accessing funds from the revolving fund.

Central Ministries would be playing a critical role in identifying activities under the priority sectors and providing support. It says that after the implementation of ESP activities, they must continue to support and provide guidance in policy, technical, advisory and operational matters.

The Ministry of Finance, Ministry of Economic Affairs, Ministry of Labour and Human Resources, Ministry of Home and Cultural Affairs, Ministry of Education, Ministry of Health, Royal Monetary Authority and FIs will play the main role in the implementation of ESP activities. The report says this will require a dedicated focal person at a senior level to be involved on a full time basis to coordinate activities.

It recommends adequate consultation with relevant stakeholders to create a proper understanding on the ESP implementation and widespread awareness on the availability of ESP funds.

The report says that the interest accrued from the money lent under the ESP to the banks can be used to sustain the Special Support Schemes.

The report also says that the ESP must be supplemented by efforts such as reform and rationalization of existing taxation policies, removing restrictive practices and red-tapism, improving business transport and communication infrastructure, upgrading human resource capacity, eliminating government waste and reducing excessive consumption for it to positively impact the economy.

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