Thukten Zangpo

For the success of Bhutan’s Nu 15 billion economic stimulus programme (ESP), the policy changes need to be considered, the country director of the Bhutan Resident Mission, Asian Development Bank, Shamit Chakravarti, said.

The government has secured Nu 15 billion ESP with the support from India and the discussions are currently underway chaired by the prime minister.

Shamit Chakravarti said that the ESP with the combination of good policy would unlock the doors and allow credit to flow to the productive sectors and catalyse the private sector.

“The country faces the high youth unemployment and has a small private sector. It is only through the private sector that Bhutan will be able to generate jobs and broad-based growth.

“The Nu 15 billion ESP should go to catalyse the sectors that have been choked,” Shamit Chakravarti  said.

He said that most of the credit in the economy is in the non-enterprising sectors like commercial housing, tourism, and new special education loans.

The ESP should be channelled through credit to the productive sectors, Shamit Chakravarti said, adding that the credit to be disbursed in building tourism infrastructures in the fewer tourist regions, the agriculture sector which is suffering from distress with rural-urban migration, and cottage and small industries which are experiencing low productivity.

According to the finance ministry, the domestic credit was recorded at Nu 209.71 billion in fiscal year 2022-23, marking a 25.1 percent growth because of expansion in the housing and service sector credit.

The credit is estimated to increase by 18.3 percent in this fiscal year 2023-24 to Nu 248.06 billion.

The estimated growth in the sectoral credit is driven by housing with Nu 8.52 billion, hotel and tourism with Nu 4.95 billion, and manufacturing sector with Nu 4.14 billion, accounting for nearly 50 percent increase.

Along with pumping Nu 15 billion into the economy, Shamit Chakravarti said that there is a requirement for conducive policy reforms for the private sector growth.

Multiple factors are needed at policy level, he said, in terms of access to finance, ease of doing business, consistency and predictability of policies among others.

The government needs to review the licensing requirements and foreign direct investment restrictions on the private sector.

Suppose, a entrepreneur goes to a bank with a business proposal, most of the banks lack the capacity of evaluating it based on the merits and demerits, and there are also requirements of collateral for availing loans, which is not conducive for the private sector, Shamit Chakravarti said.

The government should also review the bankruptcy and insolvency laws.

“Bankruptcy law in Bhutan is modelled for larger enterprises. If a business go bankrupt because of exogenous factors, a business cannot reschedule the loans he owes to the bank,” Shamit Chakravarti said. “There are ways where insolvency law can be reformed and revised to make the equation between the banking sector and entrepreneurs less adversarial and more constructive.”

The government should also look into public-private partnership to finance infrastructure development and service delivery.

Currently, Shamit Chakravarti said that the private sector cannot compete with the state-owned enterprises (SOEs) because the government provides subsidies if they run into losses.

SOEs in Bhutan had an asset size of Nu 318 billion which was 180 percent of gross domestic product. However, it employed only 3 percent of the economy in 2021.

With the Nu 15 billion ESP, the government wants to inject in the banking sector, enabling loan deferments, reducing interest rates, and creating other loan schemes to boost the economy.

There are also plans to set up a special loan scheme to support special groups like farmers, women, youth, persons with disabilities, special investments for economic growth of rural areas, and creation of specialised credit windows dedicated for the cottage and small industries.