ADB advises more govt. investment in education

Upping expenditure in the sector by 10 percent would result in a far more stable growth path

 Report: While hydropower is and will continue to be the bedrock of the country’s economy, higher investment in education, health, and efforts to diversify its economic base through tourism and other niche sectors like agriculture can yield a much higher growth output.

Projecting a growth of 6.8 percent in 2015 fiscal year, the Asian Development Bank (ADB) attributes this to construction of hydropower projects and the removal of credit and import restrictions, which will boost consumption and trade, pushing economic growth.

ADB’s report, ‘Unlocking Bhutan’s potential’, asserts that impressive growth in the past was driven by doubling investment in hydropower, and that such growth is vulnerable to external shocks.

The report states that improvements in human capital through investment in education and health would not only raise productivity directly, but also improve the labour force’s skills and productivity in the economy.

“Although the government’s social expenditure has been increasing over time in absolute terms, it has not kept pace with the economy’s expansion,” the report stated.

While numbers may have gone up, the government’s current and capital spending on education, as a proportion of GDP, has been showing a declining trend.

This, according to the ADB has implications on productivity and overall development. ADB’s projections reveal that, if spending on education dipped to 5 percent of GDP in 2014 and 2017, it was not satisfactory.

It was stated that raising government expenditure on education by 10 percent would result in a much more stable growth path.  Under this scenario, potential output growth averages 7.5 percent during the forecast period (2013–30).

The hydropower earnings, which averaged between Nu 10B to Nu 11B, according to figures from the Royal Monetary Authority (RMA), that also reveal that tourism earnings last year recorded the highest at USD 68.9B.  This is however exclusive of the earnings for December.

Meanwhile, support to the economy, according to ADB, would be provided by economic stimulus package worth Nu 5B financed by India.  Almost half of the fund was made available to banks for priority lending to potential growth sectors, such as small and cottage industries.

In its report, ADB found that the manufacturing sector had not contributed much to Bhutan’s overall productivity growth.  Instead, it was the steadily growing service sector that led productivity in the Bhutanese economy.

However, imports of materials for construction of hydropower projects are expected to widen the current account deficit to 29.9 percent in FY2015.

By Tshering Dorji

 

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