Watch the Debt

The US Federal Reserve and the US government pumped in trillions of dollars through monetary and fiscal measures respectively, to save the US economy.

Many central banks and governments around the world have done the same, and no one can argue against it.

Bhutan has also gone down a similar path with the government frontloading a lot of activities and taking on huge non-hydro debt in the process.

However, while this approach was needed, there are also certain risks that the RMA and the government need to watch out for.

A major risk to watch out for is to ensure that the government does not take on too much debt too quickly in pursuit of plan activities.

The 12th plan, for all purposes, was already underfunded from the beginning especially after it increased in size, and there were early questions from late 2018 and early 2019 on how the government would fund the plan.

It must also be noted that the Bhutanese economy was already slowing down in mid 2018 and 2019 itself partly due to the transition, and partly due to an inherent economic slowdown. Despite not having adequate resources the government went ahead and gave a pay hike in 2019.

Then the pandemic hit in March 2020 and suddenly a bad economic situation became worse.

This was reflected in the 2020-21 budget with a large fiscal deficit due to internal revenue being unable to match the expenditure.

The 2022-23 budget next year is going to be even tougher to balance as the government will be even shorter of revenue and with pressure to raise the growth rates.

The main debt to watch out for will be the non hydro debt most of which goes into developmental activities like farm roads etc. The problem with a ballooning non hydro debt is that unlike hydro debt, it is not self liquidating.

As per the figures so far the non hydro debt has been increasing alarmingly over the last three years.

The government has already announced its intention to borrow more to stimulate economic activity, but it will have to be very careful and prudent otherwise our debts will be too high to pay off, and in a worse case scenario we could end up like Greece.

The RMA must also ensure its monetary policy of easy money does not add to inflation, which is already shooting up making life miserable for the low income group. It must also ensure that its monetary policies dose not create undue stress on Financial Institutions.

“Every time you borrow money, you’re robbing your future self.” Nathan W. Morris

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