Bhutanese economic growth has always been guided by the principle of sustainable and equitable development. This economic development principle has enabled the government to create the conditions for broad based development ensuring that development benefits the majority.
Recently, there is an economic uneasiness in the world, which started with the financial crisis in the US in 2008, sovereign debt crisis in the Euro zone, and excessive volatility of Indian Rupee, impacting the global economic growth.
Despite slowing growth trend of global economy, Bhutan with 4.6% in 2012 growth rate was ranked third in the SAARC region. The global growth rate for 2012 was only 3.2%, with many advanced economies showing zero growth or contraction.
The IMF Article IV Consultations report 2011 rated Bhutan’s economic performance as strong. Below is an interview with Finance Minister Namgay Dorji adopted from the Kuensel.
While some claim the economy is overheating, some are of the view that it is slowing down? Please explain.
Overheating of an economy occurs when its productive capacity is unable to keep pace with growing aggregate demand. It is generally characterised by high economic growth occurring at an unsustainable rate, accompanied by high inflation rate.
IMF Article IV 2011, stated that Bhutan’s near-term economic outlook is favourable, but with overheating risks. Although the average economic growth was at about 7% in the past five years, the high credit growth and inflationary pressure posed vulnerabilities of overheating, resulting into high current account deficit, averaging about 17% of GDP. Based on Article IV recommendation, the government in the past has taken various monetary, fiscal and administrative measures to manage aggregate demand, which, in turn, help to improve external balance. The slowing down of growth rate to about 4.6% for 2012 is the outcome of measures taken by the government to improve external imbalances in the economy.
How will the economic stimulus plan help stimulate the Bhutanese economy?
The details can be provided after the government approves the economic stimulus plan (ESP) implementation strategy.
Bhutan experienced the lowest growth rate at 4.4 percent last year, how will your government achieve the 10 percent annual growth rate stated in the manifesto?
As reported in the budget report, 2013/14, the economy is projected to grow at 7.1% in FY 2013-14, mainly driven by industry and service sectors. The growth projection for the FY 2014-15 is 6.9% and FY 2015-16 is 6.8%. However, average growth for the 11FYP is estimated to be above 10%, due to commissioning of the three mega hydropower projects, and commencement of the implementation of the remaining projects under the accelerated hydropower development initiative. Further, injection of Nu 5 billion economic stimulus plan is expected to stimulate sustainable economic growth through additional credit available for investment that generates employment, helps in import substitution and export promotion.
The shortage of rupee has left several marks on the Bhutanese economy, do you think the restrictions put in place by the central bank needs to continue? For how long?
The need for INR will largely depend on the pace of economic development in the country. As more than 80% of goods and services are imported from India, both for consumption and investment, any new developmental activity will translate into corresponding import of goods and services from India. This will result in increased demand for rupee, which ultimately leads to draw down on the reserves. As such, question on whether or not to lift restrictions to solve the rupee shortage problem will largely depend on the productive capacity of the economy to substitute imports and enhance exports.
The current rupee shortage is a symptom of imbalances in the external sector deduced from domestic factors, such as excessive consumption growth and structural economic imbalances. Until such a time, fiscal measures are introduced to correct the external imbalances; the import restriction measures may have to continue.
Besides the economic stimulus plan, are there any other measures to tackle the current account deficit and the shortage of rupees?
The government is making all the efforts to improve the rupee situation in coordination with the relevant players in the economy. Above all, the GoI’s budgetary support of Rs 45 billion for the 11th plan, Rs 5 billion for Economic Stimulus Plan and remaining Rs 3.9 billion for the 10th plan fund will help to improve the INR situation to a large extent. The government will channel these funds into productive sectors to enhance productivity through various sectoral strategies and mechanisms.
It is also the roles and responsibility of every citizen to work collectively to tackle this issue. All Bhutanese can contribute in addressing the rupee situation by changing consumption habits, encouraging use of local materials, etc.