The Covid-19 pandemic is unprecedented in every respect. The International Monetary Fund, in its latest outlook, predicts that the global economy will contract by -3 percent in 2020. Emerging markets and developing economies are forecast to contract by -1 percent. As a result, developing countries will experience significant reduction in living standards and reversal of economic and social gains achieved in the last few decades.
Growth across South Asia will be a paltry 1 percent. Bhutan is likely to experience a steeper drop in GDP than we did during the 2008 financial crisis (4.7 percent growth in 2008-09) and the Indian Rupee shortfall in 2012/13 (2.1 percent growth in 2012-13). The impact on our construction and tourism sectors are very visible now. Revenues from our exports, particularly commodities, manufacturing and electricity, will decline due to the fall in economic activities in India and Bangladesh, which make up ~70% and 20% of our export markets respectively.
Bhutan is fortunate to have His Majesty the King personally leading our response to Covid-19. The government, under His Majesty’s guidance, has put in place a package of measures to support the economy. The economic stimulus plan of Nu 30bn, equivalent to 20% of 2018 GDP, is comparable to that of any developed country and more substantial than those of many countries in our development cohort. In addition, loan repayment deferrals and interest waiver for the next three months, individuals and families have access to the Druk Gyalpo’s Relief Kidu while businesses can avail more affordable working capital.
We are in new territory. Our behaviours and attitudes will change as we consider the implications of Covid-19 on our economy and our society.
The pandemic has yet again exposed the structural issues of our economy– dependence on certain sectors and markets and the fragility of our supply chain. We have to consider several questions as we develop our new economic vision and strategy. How do we build a more resilient economy? Which sectors should we bet on? How should our education change? What balance should we target between import substitution and dependence on regional and global supply chains? What will the likely pushback to globalisation and move towards localisation post Covid-19 mean for Bhutan?
Our ways of working will change. We now know that, with the right technology and tools, working remote is possible and practical. Companies and indeed the civil service will reconsider ways of working. Working from home and flexible working will become more acceptable. Coming out of this downturn, some companies and the government may find out that we have far too many employees and invested far too much into office spaces.
Covid-19 will also accelerate the adoption of digital solutions. We have seen the value of digital solutions across multiple areas such as remote working and online education. Individuals are increasingly using their mobile banking apps for money transfer and other day to day transactions. There are reports that more Bhutanese in urban areas have signed for online services. We will see increased investments into digital across different sectors over the next few years.
This crisis is a huge blow to the dreams and aspirations of the youth (between 15 and 24 years old), who form 20% of our population. We can further expect the youth unemployment rate (11.9% in 2019) to increase. We must also remember that for many Bhutanese (below 40 years) and their families, this is the second economic crisis in the last 8 years and the third in over a decade. We have a generation of people scarred by multiple economic crises, which will have depressed their living standards and deprived many of economic opportunities. This means as much government effort and resources as possible will need to directed at creating opportunities for groups of people such as the youth who are far more impacted and will find it harder to recover.
In these times of huge market and economic uncertainty, the finances of individuals and companies will have been put under immense strain. Capital preservation will be a priority for everybody. The attitudes and behaviours of businesses and individuals will change, with preference for savings and similar products. In the short to medium term, investments by businesses and consumption spending by individuals will decline. Banks and other financial services companies have opportunities to develop products and tools which can help individuals and businesses plan and manage their finances better. We could also see the growth of financial advisers and a financial planning market.
We must all pride ourselves in our ability to organise and support each other over the last few months. We have seen many selfless and compassionate actions organisations and individuals. All of us are immensely grateful to all, particularly our doctors, nurses and everybody in the health sector. Our culture and tradition has in-built social security and support mechanisms which have enabled us to respond effectively. However, we must agree that there are opportunities to further strengthen and complement our informal support mechanisms with a more formal social security system. This means developing and implementing a policy and structure for supporting the unemployed and the vulnerable, using market instruments such as insurance products and similar instruments (e.g. for business interruption and income protection), and clarifying the role of insurers, civil society organisations and the government within such a system.
The next 12-18 months will be uncertain as the world looks for a vaccine and work hard to prevent a second wave. There are no doubts we will triumph. In the process, we have to make many bold and difficult decisions and significant policy changes, and embark on more ambitious and long term initiatives to build a more robust society and economy.
Contributed by Dorji Wangchuk