Govt. positive of a six percent growth in the rat year
MB Subba & Ugyen Penjor
If the economy of a country is judged by what is happening in the private sector, the Year of the Pig was the laziest in terms of economic activity.
Representatives of the sector accused the government of not injecting enough investment in the economy to keep it buzzing and therefore, forced the sector to tighten its belt, some even resorting to downsizing and retrenchment.
The government began its first year in office in the backdrop of the slowest economic growth. The economic growth had slumped to a four-year low of 3 percent in 2018 from 4.7 percent in 2017.
Official reports blamed a decline in hydropower activity and public investment and subsequent impact on domestic savings and investments for the economic slow down in the country.
Soon after taking office, the government rolled out a Nu 43.560 billion (B) interim budget for the first half of the year 2019 with the aim of reviving the economy.
Only 25 percent of that budget was earmarked as capital budget. About 67 percent of the budget was earmarked as current budget.
Although the year did not see big capital investments in the public sector, the inauguration of the Mangdechhu hydropower project was the biggest achievement during the year.
The hydropower production capacity crossed 2,000MW when the 720MW hydropower plant was inaugurated in August last year.
Hydropower is the single largest source of income for the country and the centerpiece of cooperation between Bhutan and India. Prime Minister Dr Lotay Tshering and his Indian counterpart Narendra Modi inaugurated the Mangdechhu Hydropower Plant in the Kuenrey of the Semtokha Dzong.
The RMA has projected that the commissioning of the Mangdechhu plant is expected to accelerate the economic growth by more than 6 percent. The revision of salaries and allowances of civil public servants and corporate employees is also expected to enhance the economic growth through consumption.
Since the launch of RemitBhutan in September 2016, inward remittances had been increasing until last year. Remittances in Bhutan constitutes only about 1.5 percent of the GDP.
However, according to records with the RMA, the country’s inward remittances as of August last year was Nu 1.5 billion (B). This was a decrease by half the amount the country received in 2018. Remittances in the form of Australian dollar (AUD) declined to 15 million (M) in 2019 compared with 31M in 2018.
Critics, including the Opposition, blamed wasteful expenditures in the form of current budget for the economic slowdown. The decreasing trend in capital investment, they said, worsened the unemployment problem.
During the year, construction activities decreased by 8.0 percent due to slash in government capital budget allocation in the interim budget of FY 2018-19, falling by more than two thirds, followed by slowing hydropower construction activities, according to official reports.
A slash in government capital expenditure and slowdown in hydropower investment resulted in a 5.6 percent drop in overall investment expenditure in 2018.
However, the government argued that the trajectory must be looked at in the right context. It said that it was more important to improve the existing facilities and infrastructure than to rush on building new ones.
However, one of the problems the economy is facing is the inability to fully utilise the allocated budget.
A capital budget of Nu 2.5B was allocated for this fiscal year 2019-20. But 60 percent of the budget remained unutilised due to various reasons such as formality incurrence, delays in issuance of clearance and incomplete activity designs.
One of the biggest highlights of the year gone by was the Flagship Programmes. There are a total of nine flagship programmes.
Faced with the economic slowdown, the government stated that economic diversification was a solution to accelerate the economic growth. The government acknowledged that dependency on hydropower alone could no longer sustain the economy.
In the past year, in what the government called diversification of investment, it prioritized investment in human capital in the form of health and education, agriculture and tourism.
The government is also hoping to improve the economy through various tax measures that are being discussed in the ongoing parliament. The government wants to recoup additional Nu 10B as tax, including Nu 3B annually with the implementation of Goods and Services Tax.
Economic affairs minister Loknath Sharma said that the government is hoping to achieve an economic growth of 6 percent in the year of the Rat.
The growth rate is dependent on the Mangdechhu and Kholongchhu project, which the government expects to pick up. The government expects more economic activity with improved capital budget in the next fiscal year. The government expects the industrial estates to come into the construction phase. “Government expenditure and capital budget will increase significantly and it will fuel the economy,” says economic affairs minister Loknath Sharma.
However, with the recent outbreak of Coronavirus, the government is apprehensive.
“The global economy is affected and we will feel the repercussions,’ says the economic affairs minister. “If the coronavirus subsides, probably we could expect more than a six percent growth rate.”