sparks economic issues

Going by the trade statistics, the country’s effort to promote export and substitute import is a far-fetched dream, which has been suffering from a serious deficit since 2011.

In a way, the trade deficit is due to smallness of the country’s economy and vulnerabilities ignited by the dominance on hydropower and government spending. 

Even as the government promotes foreign direct investment (FDI), Lyonchhen Dr Lotay Tshering, during the review of the Annual Performance Agreement (APA) of the finance ministry on September 2, said that should an FDI of more than Nu 100B comes to Bhutan, the government and stakeholders like the central bank wouldn’t allow it.

The investment size equal to or more than the country’s GDP would cause distress in the economy because the economy cannot absorb the sudden shock.

The Rupee crisis that surfaced during the tenure of the first elected government is the case in point, according to some local economist. The construction boom and commencement of three mega hydropower projects at a same time entailed more import, which in turn necessitated more Indian Rupee.

For the first time since the commissioning of Chukha and Tala power projects, the country’s economic growth hit double digits but suddenly nose-dived to an all-time low after the rupee crisis. This also coincided with the end of 10th Plan where capital investment from the government exhausted and contractors and agencies dependent on government defaulted on loans with no activities in hand.

This means that growth  was fuelled by government spending and investment in hydropower.  However, private investment in construction and building, which also contributed to the rupee shortage was fuelled by excess liquidity the banks catered to back then.

Figures from the RMA point out that almost half of the loan (44 percent) as of March this year pertained to non-enterprising sectors like housing, personal loan, staff loan and education loan. About 23 percent of outstanding loan is attributed to of medium industries and 17 percent to large industries.

The concern, some officials and banker shared, was that a majority of loan portfolio was directed to non-enterprising sector, sectors that did not create jobs and that directly translated into imports.

Loan for housing and hospitality also constitute about half of the loan portfolio. The concern here is the growing non-performing loan, which has reached almost 40 percent.

Trade deficit

Amidst growing imports, electricity is the only saviour to narrow the trade deficit. Compilation of this year’s two quarterly trade statistics reveal that the country has imported goods worth more than Nu 32B against an export of Nu 13B, leaving a trade deficit of about Nu 19B until June this year.

Had it not been for more than Nu 2B from electricity sale in the first half of this year, the gap could have been even wider.

Among the top import commodity, petroleum products such as diesel and petrol dominate in terms of value. Until June this year, the country imported about Nu 3.9B worth of diesel and about Nu 1.1B of petrol. The combined value of fuel import until June, which is about Nu 5B, is more than the electricity exported until the same period (about Nu 2.5B). However, it is expected that electricity export will pick up during the autumn months.

The import of fuel is further aggravated by vehicle import, whose monetary value every quarter reached more than Nu 1B, meaning that until June vehicle import touched about Nu 2.3B.

The country also imported Nu 838M worth of rice when efforts have been put to achieve rice self-sufficiency.

In terms of export, boulders emerged as the top export commodity in the first quarter of the year with more than Nu 1B in value. However, it dropped to second position with Nu 680M. Exporters blame the controversy that surrounded surface collection and transportation issue for the drop in business.

Silicon is another export commodity that earned Nu 1B in the first quarter and another Nu 1.9B in the second.

Tshering Dorji