Post Covid-19: Rethinking of economic structure in Bhutan

Before the advent of modern development in 1961, Bhutan was a self-sufficient agrarian economy with import concerning only essential items such as salt. This structure of economy was feasible because of the policy of self-isolation allied with non-monetary transaction of barter system. Such practice shielded the country from Great Economic Depression of 1930s in the world.  The impact of Covid-19 pandemic in the world is unprecedented where economies being halted and nations closing its borders. This has exposed that even the highly developed economies in the west are struggling to battle the pandemic not only with human resources but also with the medical equipment. Bhutan under the personal leadership of our King and efforts of the government has been praised for its success in combating the pandemic with no local transmission. Post Covid-19, there is an opportunity to rethink and make structural changes to the economy to raise the level of self-sufficiency.  However, significant investment in agriculture, cottage and small industries (CSIs) and service sectors are vital to enhance the self-sufficiency rate (SSR).

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Agriculture is the major sector of employment with 44 percent of Bhutanese engaged in it while all other sector’s share of employment is below 11 percent (refer figure 1) and yet our SSR of rice, the staple diet is only 47 percent as of 2018  and it has remained almost constant since 2014 (refer figure 2). The national share of budget of agriculture since the 7th Five Year Plan (FYP) shows decreasing trend until 11th FYP from 16 percent to just 6.4  percent. However, it has increased to 11 percent in 12th FYP. One of the major factors underlying the slow growth of agriculture is public investment. Thus, there has to be a substantial increase in investment in the agriculture sector to increase the productivity and thus the SSR. Production of rice has almost remained constant from 2014 to 2018 with slight reduction in 2018 while the consumption has been the double the quantity produced since other half is imported (refer figure 3). One of the major issues in the agriculture sector is the market access. Linking the institutions such as boarding schools and farmer’s cooperatives has helped in selling farm produce to some extent. Such type of supply chain must be rigorously pursued by encompassing other bigger institutions such as monastery. Perhaps, the indicator for measurement of Annual Performance could be the sale of farm produce rather than the quantity of production which do not capture the impact of higher production such as increased income. Post Covid-19, we could reorganize the agriculture sector by focusing on higher production of rice, other organic cereals, vegetables and horticulture. Government could provide price support to farmers and linkage to the market both domestic and foreign.

The private sector which has a major composition of CSIs has long been identified as the engine of growth and yet the growth of it is not up to the expected level. Some of the common issues cited for its sluggish growth are lack of comparative advantage and not attaining economies of scale. However, for CSIs the very fact of its factors of production being small, the economies of scale would also be of lower magnitude and thus achievable. The products could also be sold out domestically and exported with the support of government. Moreover, value added products of organic processed food, could be exported with high standard of packaging fetching higher prices.  Food processing industry could be setup under the brand name of organic rather than exporting the agricultural produce without value addition. If we could establish food processing industry and market its products both in domestic and foreign markets, it could be a major source of employment for our youth who could involve in various stages of the production, processing and marketing. The processing industry would create a market for the farm produce and create other subsidiary companies. Economic growth could take place in which youths who apparently flock to cities in search of employment could turn back to their villages and increase the marginal output by engaging in this new organic cash crops. The marginal physical productivity of labor (MPPL) described in Sir Lewis structural model of change would be positive and there will be no undisguised employment. Gradually, the staggering youth unemployment issue could also be managed significantly.

Tourism is the highest source of foreign exchange revenue in the economy with the revenue directly depended upon arrival of tourists. However, the future of tourism industry looks uncertain not only in Bhutan but also in other countries around the world.  For instance, Cypriot government has offered to pay for vacation and medical expenses of tourist if they suffer from Covid-19 while holidaying in the country to attract tourists. Tourism is one of the vital sectors of their economy and it accounted for 15 percent of GDP in 2019. To leverage and diversify the source of foreign exchange revenue, foreign students could be invited to study in various colleges in Bhutan. We could also be a venue for favorable sporting events and conferences/workshops of both regional and international.  When such events are held, hotels and transportation services would be required keeping them employed from the fall of conventional tourism. 

The closure of borders due to the pandemic ostensibly moved the economy from open ended to closed economy around the world. In Bhutan, with strong relations and support of neighbouring countries, there is uninterrupted trade taking place for the supply of essential items. However, there is a need to seriously reconsider the economic structure post Covid-19 as we import almost 50 percent of our staple diet rice. Higher rate of investment in agriculture sector is essential to raise its productivity and to achieve the optimum level of production. Market needs to be linked after production and not just measuring the success as quantity produced. Farmers cannot find the market while we keep on importing is itself paradoxical. Cash crops and horticulture could be promoted involving youths. Government support is necessary in the setup of processing industries and marketing its products at least in the initial stage of growth of the industry. There is a potential to consolidate and diversify the foreign exchange revenue through introduction of educational program such as attracting foreign students, hoisting conferences and sporting events. Such programs can also keep engaged the hotels and transportation service providers from diminishing conventional tourist market post Covid-19.

Contributed by

Wangchuk

Thailand

wangchoo@gmail.com

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