Can the bird fly high with the monkey’s fortune in the coffer?

Yearender |  Economy: The Monkey has built its fortune by bolstering the humble coffer it inherited. As the time approached for the Monkey to   pass its heirloom to the bird, a trifling bug seems to have infested the coffer.

The economy has more or less recovered from shocks of the INR shortage, credit and import restrictions. Economic growth rebounded from an all time low of 2.05 percent to 5.5 percent to 6.5 percent in the Monkey year.

Signs of stabilisation were beginning to emerge and then the impact of demonetisation of high denomination INR notes in India hit Bhutan.

On the economic front, the Monkey year caused the economy to expand to Nu 132 billion, escorted by a historically significant INR reserve of about Rs 30 billion. Inflation last year achieved an all time low figure of 3.22 percent on the back of steady global fuel prices.

The country is witnessing some structural changes and transformation with GDP’s contribution of the secondary and tertiary sector surpassing the primary sector.

With the lift of credit restrictions, the construction sector is back in the footing, private consumption has increased and small businesses are on the verge of mushrooming.

Small, cottage and medium industries recorded a major growth of 15 percent compared with the past year.

However, after much scrutiny on the legal aspects of the Business Opportunity and Information Centre (BOiC), the government decided replace it with the Rural Enterprise Development Corporation.

Escalating public debt is once again fueled by hydropower loans. At one point of time last year, the debt to GDP ratio stood at 116 percent. But this did not concern the government because non-hydro debt was kept below 35 percent of the total debt. To this effect a public debt policy was framed.

Domestic revenue has grown by an estimated 20 percent on the back of higher export revenue of sale of electricity, the commissioning of Dagachhu, debt servicing of Kurichhu and tax revision.

To enhance its revenue, the government has re-introduced the lottery business as a new state enterprise. But some channel of revenue leakage has also been formalised. The revision in the PIT ceiling will result in a loss of Nu 484 million from the government’s coffer.

Introduction of a book tax also dominated headlines in the media.

The fiscal incentive policy was also scrutinised after it was brought into the limelight that high-end hotels and big businesses reaped most benefits.

In terms of government budget allocation, the Monkey got the lion’s share of about Nu 50B geared towards power decentralisation. Despite the gewog development grant falling under the audit scanner, a Dzongkhag Development Grant of Nu 7 million has also been approved.

But amidst the glowing health of the economy, the Monkey is already aware of the uncertainties as the country prepares to graduate from the Least Developed Countries (LDC) category. The repercussion will result in reduced grants and aid. Pressure on the debt burden, dependence on the hydropower sector and a widening trade and current deficit remains a concern.

With easing credit, the number of cars imported increased to 84,891. The fuel bill almost negated the earnings through sale of electricity, putting the energy trade balance in the red.

There was a time when bankers joked among themselves that from a period of “crazy” banking in 2012 characterised by excessive lending, things have more or less settled down to “lazy” banking. But the Monkey year managed to keep the bankers busy.

Among many reforms in the monetary policy, the minimum lending rate replaced the base rate policy resulting in a reduction of interest rates across the financial institutions.

Domestic credit has grown by 21 percent to more than Nu 86 billion from 71 billion the previous year. However the housing sector was again implicated for more exposure to risk.

SME banking, agent banking, Remit Bhutan and various mobile applications were introduced in the Monkey year all geared towards financial inclusion.

Bhutan has also performed relatively well in its global indicators like doing business ranking and the economic freedom index.

Going ahead, as the country welcomes the female fire bird year, the projections are glossy. IMF projects a growth of more than 8.6 percent which makes Bhutan the third fastest growing economy in the world. The Central Bank has also projected a 10.2 percent growth should the new hydropower constructions and commissioning of ongoing hydropower projects ensue as scheduled.

The medium term economic growth prospects for the country remain favourable with projections to narrow down the trade and current account deficits.

Yet the economy will continue to face numerous structural weaknesses and challenges derived from over-dependence on the hydropower sector. It is however assumed that the new economic development policy with 36 game changers in the economy will deliver the much talked about economic diversification.

It is for the bird to see how high it can fly with the burden of materialising the new EDP, achieving the economic growth as projected and addressing the challenges without hurting its coffer.

Tshering Dorji