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A three star rated fully furnished hotel for sale at Nu 70M with transferable loan. Buildings for sale, heavy machinery, trucks and land put up for auction. There is something wrong going by these activities.

Is the economy in a problem?

Going by the increasing non-performing loans (NPL), the symptoms are similar to the one that the country experienced in 2011 and 2012 when the rupee crisis struck the economy. Back then, construction boom was draining the rupee reserve.  Today it is the boom in hotels.

If the laxity in reserve management was the problem causing rupee shortage, today it is the growing NPL that is affecting the health of financial institutions. In both the cases, trade imbalances prevailed and the ripple effect distorted other sectors.

We have seen an economic recession of a sort, but this time, if it happens, the consequences would be grave.

Hotel and tourism are the highest defaulters of loan with NPL crossing 30 percent this year. Building and construction lug the highest loan exposure, followed by trade and commerce.

The connection and interdependence of one sector on the other is as entwined as the smallness of Bhutanese society. For instance, hoteliers not doing well will affect the retailers, groceries, and handicrafts and, in the end, banks will have to bear the brunt of failures of all these sectors. 

When the banks run out of business, entire economy suffers. Pull one card and the entire deck falls apart. This is the skeleton of country’s economy, in short.

Hotel and tourism are contingent on the tourism policy and so is its fate. The government must use prudence and handle the issue with delicately. One wrong policy could cost the nation’s reputation of being high-end destination. Already, reputed international travel companies are striking Bhutan off its list and mysterious agents in the region are selling Brand Bhutan across the world.

While hydropower is the major contributor to the domestic revenue, the country must realise that energy trade is in the red, given the value of fuel import and loan repayment. What is even more staggering from the RMA’s financial sector performance review is almost half of the loan portfolio constitutes non-enterprising loan, meaning that these loans are consumption and import driven with no job creation.

This is worrisome because sectors that have the potential to create jobs, substitute imports and promote exports are not getting the required financing opportunity. This is because banks ought to make profit with minimal risks where returns are guaranteed. In the process, banks land up giving loans to those who have the capacity to pay back. This boils down to the fact that banks do not trust the entrepreneurs and farmers going by the loan portfolio which is minimal in agriculture and CSI sectors.

Nevertheless, when Bhutan is contemplating on the structural flaw in the economy, the world is already talking about the fourth industrial revolution on the back of artificial intelligence, blockchain, robotics and fintech.

His Majesty, during the 112th National Day spoke clearly on the need for  21st century economic road map. 

At any rate, Bhutan’s economic development must transcend monetary gains, promote equitable socioeconomic development that is world class and happiness oriented.

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