The outbreak of the Covid-19 pandemic has unfolded new global socio-economic challenges. As the spread of the virus transcended international borders, the economic activities have been disrupted, joblessness exacerbated to an unforeseen levels and millions pushed into poverty. Many international organizations claim the recession the worst since the Great Depression of the 1930’s. As an import-dependent economy, Bhutan is no exception with economists forecasting negative growth over the next few years.
After a major slowdown in 2013, Bhutan’s economic growth rebounded with an average growth of 6.1 percent. While the growth slumped to 3 percent in 2018 it rebounded to 5.4 percent in 2019. The growth forecast for 2020 was 5.4 percent with inflation below 2.6 percent (2019). However, like rest of the world, the pandemic has overturned Bhutan’s growth.
Ever since the detection of the first Covid-19 case in the country on March 6, Bhutan adopted stringent measures to prevent import of more cases and community transmission. The international land borders were closed for general thoroughfare, while the movement of essentials were allowed cautiously. This interrupted the flow of goods and services which had a cascading effect on all sectors of the economy. For instance, the interruption in supply of factors of production affected the manufacturing and construction sector while the ban on tourists thwarted the otherwise the most important economic sector.
The temporary restriction on tourist affected the tourism industry which is the second-highest revenue generating sector for the country. It is estimated that the revenue loss of approximately USD 138.00 million in 2020 was due to the disruption to the tourism sector. This means that the tourism related industry would remain suppressed for the next few years. The livelihood of over 50,000 people who are already affected and will continue to be at stake. The unemployment issue is further being aggravated due to the overseas returnees. The latter would remain the most pressing issue for quite some time.
As on 16th October 2020, Bhutan has 316 Covid-19 cases of which 296 are declared recovered. One national-assured hubris of the health system that Bhutan takes pride in is our effort to keep Covid-19 related death at zero. At the helm of this success is the selfless efforts of our leaders who make sacrifices for the welfare of the country and the people. In fact, Bhutan has demonstrated that visionary leadership is more important than advancement in technology and wealth during such trying times.
Drawing inspiration from Their Majesties’ vision and Prime Minister’s quartet, Bhutan already has a clear plan of action for fighting the pandemic and the post pandemic economic recovery. This calls for a concerted effort of ensuring the economy regains momentum by picking the low hanging fruits. Some of the short-term (3-6 months) thrust areas that could be considered are as follows:
Breaking the silos
Numerous efforts are underway involving many agencies leading Covid-19 contingency and economic recovery plans. If uncoordinated, these efforts will cause duplication and loss of already strained government budget. Therefore, all agencies working for a common goal must work single-mindedly and put the ideas together. This can help avoid duplication and redundancy in formulating various strategies, and synergies towards economic recovery. The Prime Minister’s Office should lead such cross-sectoral group to provide impetus and momentum to the deliverable.
Fast-tracking service delivery
In order to encourage and enhance economic activities, all possible public services must be liberalized, deregulated and fast-tracked. Some of the options under this proposal are the adoption of a system of “allow first, regulate later” for economic activities with minimal impact on security, public health and environment. The requirements for sectoral clearances can be lifted or reduced through the adoption of a “One Government” approach.
The reform must ensure that the business-as-usual does not happen during this period. Bureaucratic procedures and document requirements should be minimum. Requirement of sectoral clearances must be lifted wherever possible and if there is no value addition to procedure.
Free Economic Zone
All townships of Samtse, Phuentsholing, Gelephu, Nganglam, Panbang, and Samdrup Jongkhar must be identified as a free economic zones effective immediately. Business operating in these areas should be exempted from all taxes to make businesses competitive. Parallel imports, with commensurate tax, must be permitted to ensure competition and widen choice within the economy.
Supply chain management
The differentials between the customs duty and sales tax for goods imported from third countries and India, respectively, should be minimal. This could encourage establishment of wholesale dealerships within the country for the sustainability of the market and cost-effective commodities.
Paradigm shift in tax
The manufacturing and service sectors that add value and substitute imports must be assisted with liberal import rules to ease access to the factors of production. The current taxes on the factors of production, wherever applicable, must be waived off. Alternatively, taxes on income must be reviewed to augment revenue loss due to the above exemptions. One alternative is to lift all income tax exemptions, as it is the prevailing 5-10 years exemptions are an eye wash with no real benefit. Practically, businesses barely breakeven in these years. Therefore, there is no question of collecting income taxes.
Support to informal sector
Considering the affect of the pandemic on the micro sectors, the Royal Government has extended the working capital loan. However, because the sector is mostly unorganised , many of the micro-sectors will not be in a position to avail the benefit. Against this, many of these informal sectors need financial assistance at least to buy the goods. So, the Micro-finance scheme should be extended to the informal sectors as well.
Mechanise and commercialise agriculture: The agriculture sector needs an overhaul. A policy shift from organic to commercial farming is a way forward. The pandemic has put into perspective the importance of food self-sufficiency. Therefore, commercial farming must be pursued aggressively. The fallow lands must be leased for commercial farming. Civil and public servants who own landholdings back in the village but are lying idle must be leased/lent to those who are willing to work. Smart Agri-tech is the future. Land consolidation is another consideration that merits attention given that productive lands are getting fragmented due to inheritance.
Encourage domestic tourism
The prospect of the tourism sector looks bleak in the near future. We must, therefore, promote domestic tourism. Civil servants and others could be encouraged to take paid leave (2 weeks) to go on pilgrimage.
Tapping forest economy
Bhutan takes pride in the richness of 82 percent forest coverage but hasn’t tapped the forest and forest products. Forest-based industries should be encouraged and forest products like logs, vegetables, and fruits could be tapped for commercial business.
To help economic rebound, opening up new mines would be an option. Bhutan could mine a small part of the 10 billion metric tons of dolomite reserves. Environment regulations should facilitate such a mining industry.
Bhutanese restaurants abroad
The Royal Bhutanese Embassies, permanent missions, and consulates should facilitate the promotion and establishment of Bhutanese restaurants abroad. This could help promote Brand Bhutan and employ substantial number of youths abroad besides earning revenue.
Standardise working environment
One reason why Bhutanese have not adapted to working in the construction sector is the nature of work and the work environment. Besides harsh weather conditions, Bhutanese are not used to working under poor living conditions. To encourage youth to adapt to this sector, the reforms must standardise the working environment.
Support should be provided to those entrepreneurs who have business plans to go for production of import substitution goods. Tax exemption should be provided on the import of raw materials to make it cheaper than those produced in other countries. The drive to substitute import should start from the government offices.
Ventures into digital financing such as mining of cryptocurrency, development of block chain technology, online marketing and investment in database marketing with major global IT majors should be encouraged. Further, all sectors should embrace the digitisaton of service delivery and working systems that would help combat the similar restriction caused by the Coronavirus pandemic in future.
Tshering Dhendup & Yeshi Dorji
Disclaimer: All views expressed are authors’ personal opinion and do not represent views of any entity associated with them.