A slump in the saddle of the Horse Year

Yearender/Economy: The economy, in the year of the horse, did not gallop; probably the venom of the serpent from the snake year (2013) hobbled the horse.

The country’s GDP growth plummeted to an all time low at 2.05 percent, from 4.6 percent in the previous year.  The slump in growth rate was largely attributed to a lower investment level and sluggish growth in the construction sector.

But in nominal terms, Bhutan’s GDP increased from Nu 97.5B in 2013 to Nu 104.4B last year, even if government investment decreased by 22.5 percent, and private investment by 38.5 percent, in the same year.

Import restrictions, which continued until mid year, continued to curtail consumption, but it increased at an unprecedented rate as soon as imports were lifted. Loan restriction continued until September, decreasing private investments.

Sectors, like manufacturing and construction, recorded a negative growth to the extent of 8 percent in the year.

On the other hand, sectors, which performed relatively better, and contributed to overall growth, were hotels and restaurants, electricity and water supply, wholesale and retail trade.

The country’s trade deficit in 2013 stood at Nu 21.42B, an improvement by about Nu 2B.

To curb vehicle imports, taxes were raised by a minimum of 50 percent and a maximum of 120 percent.  Despite this, some 2,900 vehicles were imported within four months since the ban was lifted.

The country’s energy trade balance in the year entered in red zone.  Although hydropower export translated to an income of Rs 10B, it has imported petroleum products worth Rs 8.4B in 2014.

To tide over the erosion in purchasing power, the government revised the salaries and allowances of the civil servants.  This cost the exchequer about Nu 1.79B, consequently making internal revenue barely meet escalating domestic expenditure.

The revision was supposed to be financed from the revised Chukha power tariff and other expenditure rationalisation, some of which, for instance, monetising the quota system and withdrawal of government pool vehicle, did not happen.

The government had to raise more than Nu 7B to shore up the fiscal deficit by raising treasury bills.

The revision in electricity tariff last year had several businesses considering closing shop.  The increase in electricity rates made a huge dent in their inflows, as it increased cost of production.

Dungsam cement plant in Nganglam, which is expected to fetch a net revenue of around Rs 4B annually, did not cash in as expected, even after it was inaugurated on October 22.  This was because the plant did not run on full capacity, as it was supplying only 20 percent of the cement requirement for the hydropower construction sector.

Builders like L&T still opted for Indian branded cements.

In the last one year, government of India’s assistance tripled to Rs 10.4B, including Rs 3.7B under the economic stimulus plan (ESP).

The injection of Nu 2.1B from the ESP into the banks eased the financial institutions’ liquidity problem.  However, towards the year-end. banks gathered excess liquidity of Nu 19B.

The Business Opportunity and Information Center (BOiC) was also established, with Nu 1.9B from the ESP to support activities that enhance export, substitute imports and create employment.

About 62 percent of the projects approved under BOiC were for non-formal rural activates.

Overall, rupee reserve had reached more than Nu 20B, but mostly on the account of hydropower projects loans and grants, and not because the country’s rupee earning increased.

Inflation last year dropped to 8.27 percent, a slight drop from the previous year. This was mainly on account of the fuel price drop, which was revised 19 times last year, on the back of a global fuel price fall.  At one point of time, a litre of petrol was even priced at Nu 73, after five percent tax on fuel was imposed.  But towards the year end, a litre of petrol decreased to about Nu 59.

To make the horse gallop and send its waves across the sheep year, the government has identified five jewels – economy, agriculture, tourism, small and medium enterprise and mining.  These were mainly identified as a diversification of the economy from the hydropower sector, on which the country’s economy is highly dependent.

In the mining sector, to nationalise the mining activities, a state mining corporation was inaugurated in December and handed over to DHI.  DHI also expanded its umbrella to take over the Wood Craft Center and Construction Development corporation limited.

The country’s stock of outstanding external debt saw an increase of 9.5 percent.  In three months, from June to September last year, debt swelled to 108 percent from 101 percent of the GDP size.  The country’s total debt stood at USD 1.8B.  Hydropower debt constitutes 83 percent of the total INR debt of 74.9B.

Economists, however, say that the economy will continue to ride the slump, and be subdued by a lack of investment and economic activity.

Meanwhile, because of changes in the methodology for evaluation of the ease of doing business index, Bhutan’s position has improved from 141 to 122.  But it dropped by three places in 2015.

Tshering Dorji

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