The Bhutanese Economy from a perspective of a layman

The 7% to 8% of growth in Bhutanese economy with, ‘problems that are usually not associated with similar growth in other countries,’ seem to be perplexing the new Prime Minister of Bhutan. He, therefore, maintains that GDP does not reflect true economic status of a nation. Then what really could provide a real economic picture? Is the new Bhutan Government attempting to sell a different economic theory or is it a political ploy to down play the economic growths achieved in the past decades or just the last 5 years?

How many world leaders would take such skepticism seriously? It is a far cry from the philosophy of GNH. The principal layman logic or understanding of GNH is that more money leads to more comfort but not necessarily a happier state of mind and less money leads to more hardships but not necessarily more misery in the state of mind. There are practical lessons, events and experience to support the thinking behind GNH philosophy.

The politicians especially of the Ruling Party must move away from election mode because the Party is now in the driving seat and examining economic intricacies or redefining generally accepted principal cannot bring about substantive value to the tasks ahead.

The world in general trusts GDP to illustrate a realistic economic status of a nation. For example apart from political reasons, financial institutions like World Bank or Asian Development Bank would take GDP of a nation into consideration when approving a loan or appraising economic status of a nation. In Bhutan’s context too, GDP should be the guiding factor to national economic performance status except that we need to comprehend the economic growth pattern in correct perspective given the peculiarity of our situation of having to import almost everything (human resources, materials, fuel and food) from India. There is no doubt that generating more rupee than ngultrum would ideally suit our present situation.

If Bhutanese ngultrum was a hard currency, the 7% to 8 % economic growth would guarantee a financial situation free of foreign currency crisis including that of rupee. And if the skills or temperament of the unemployed youth matched the available jobs, unemployment would not be a big issue. However the ngultrum is not a hard currency and youths cannot match the jobs created. So Bhutan is in a very strange paradox of a situation. The Ngultrum economy is doing alright but there is foreign currency crisis including that of rupee. There are huge expatriate workers and yet the country’s youth remain unemployed. The reasons are clear and many fold but solutions are rather scarce and there is a crisis of bankruptcy in the department for bold and out of box initiatives. It’s a challenge for any Party that takes the reign in governance.

Thanks to the 5 year planned development activities since 1960s, the Nation on the whole has really prospered. Bhutanese have built new homes in urban centers and village houses are left unattended. There are more cars and more opportunities. There are now many children who study outside the country some funded by the government and many more family funded. There is also an abundance of ngultrum supplies outside the regular financial institutions. For examples IPOs (shares of company being floated to the public) are snapped up and always oversubscribed 3 or 4 times over.

The national economy has seen good growth spurred on by investments in mega-projects especially of power and cement. Presently there is a rupee crisis because export has not grown at par with other aspects of the economy. However, once the power and cement projects come into production streamlines, these export oriented investments will bring in the much desired supply of rupees. Bhutan is undergoing a current account deficit in that we do not have sufficient foreign currencies including rupees to pay for all the imports a larger portion of which is used for ongoing investments or to meet large consumer appetites created by ngultrum income derived from the mega project related activities. A builder needs to wait 20 year to keep the total rent of a building for himself and likewise Bhutan needs to await a maximum of another 7 years to acquire a comfortable rupee stock. Neither the builder nor the nation is facing bankruptcy. It’s just the process of travelling through the accepted economic path of utilizing funds from other resources to leverage oneself to a position of greater economic self sufficiency in the near future.

At this critical juncture, it is necessary for Bhutan to develop national stamina both in political will and in resourcefulness to digest the incubation period that is a necessary inconvenience for long term investments in export oriented industries like hydropower projects or Nganglam cement plant of Bhutan.

Why don’t the banks have money to lend?

Not long ago prior to 2001, Bhutanese banks had cash surplus because the market for investment was limited. Today the pooled resources of 8 financial institutions cannot meet the demands for loans. Bhutanese economy has overgrown the institutional money supply side.

The banks in the past did not encourage people to bank their money. The interest on long term deposits was far below the inflationary line so people were encouraged to spent rather than save. This is also the reason why there is ngultrum money in the country but not with the bank. Recently the Banks have attuned their business outlook to attract idle money by increasing interests on long term deposits. But banks are very much in the mercenary mood in that they will increase say the interest on long term deposit by 1 % and then they increase lending interest rate by 2 %. This mercenary trend is very short sighted. Banks need to aim for more sound financial vision by going for volume business. There is a need to attract more idle money with better interest rates and at the same time maintain lending rate to a reasonably profitable level through increased loan volumes. RMA also needs to instill depositor confidence in banks by providing a guarantee for deposits kept with any Bank in Bhutan. Such a guarantee should not cost RMA any money if it is confident about its supervision of prudential guidelines under which financial institutions have to operate their business. Prudential guidelines are meant to prevent bankruptcy of banks.

In conclusion, I fully acknowledge the expertise and knowledge of financial experts, economists, bankers etc. This article is only expressing a layman’s take on the economy to share with other lay people and in the process invite their views on the economy.