Shortages of construction materials and labourers are expected impede the government’s efforts to sustain the GDP growth and prevent the economy from going into a recession.
The government’s strategy is to ramp up public spending, which involves frontloading 12th Plan activities.
The local manufacturing sector is supposed to keep the construction sector running by supplying materials, but manufacturers are reporting shortages of raw materials.
According to contractors, the construction sector, where a large portion of government spending is pumped in, is already facing a shortage of necessary materials like pipes.
Cement is fast becoming scarce due to disruptions in the import of raw materials due to the lockdown in India.
Speaking at the launch of short-term working capital loans for industries, Finance Minister Namgay Tshering on April 21 said that the economy could go into a recession if the GDP growth drops to 1.5 percent.
In its latest report, “South Asia Economic Focus, Spring 2020”, the World Bank estimates that Bhutan’s Real GDP growth in the fiscal year 2020 will decelerate in the range of 2.2 to 2.9 percent.
The finance minister said that the government wanted to promote public spending as part of its efforts to keep the economy running. “Works have been tendered out, but material shortages are a big challenge,” he added.
He said that the construction sector could see a shortage of cement soon. But he expressed hope that the short-term working capital loans would enable the industries to continue the production.
In an earlier interview, one of the vice presidents of Construction Association of Bhutan (CAB), Tshering Yonten, said that local manufacturers had expressed their inability to supply construction materials due to disruptions in the import of raw materials.
Tshering Yonten also said that the construction sector needed to depend on foreign supplies for materials as not all were manufactured locally.
He said that although the government had encouraged contractors to recruit Bhutanese workers, not many were coming forward. According to him, contractors are executing works that involves machinery and fewer labourers.
The construction sector, which is one of the largest sectors, constituted 14.2 percent of GDP in 2018. The manufacturing sector constituted 7.5 percent of GDP.
President of Association of Bhutanese Industries (ABI), Pema Tenzin, said that the association was giving the highest priority to construction sector and that industries were making efforts to ensure continued supply of materials.
“The supply chain has not been broken as far as we are concerned. But it has to be understood that we don’t produce everything that’s required,” he said.
Pema Tenzin said that the lockdown in India had affected the movement of raw materials. But he added that many manufacturers were receiving their supplies with help from the government.
On the short-term working capital facility for import of raw materials, the ABI president said that industries were trying to figure out the details.
To mitigate the economic impact, the government plans to frontload some of the 12th Plan projects among other measures.
The government says it is trying to ensure that the work on hydropower projects is not stalled.
The World Bank in the recent report suggests that improvements in tax policy and administration and the implementation of the Goods and Services Tax (GST) will be critical to increase revenues over the medium-term.
“Slower than expected implementation of the GST would also affect fiscal outcomes, because of the discontinuation of excise duty refunds and lower levels of grant financing from India,” the World Bank states.