Tshering Dorji

If the country’s economy is a gun, it has three triggers to fire the bullet.

This is the analogy of spike in the economic growth triggered periodically and by investments in hydropower, public expenditure (which relates to the five year planning period) and by growth in domestic credit.

This is according to the governor of the Royal Monetary Authority (RMA), Dasho Penjore.

Prime Minister Dr. Lotay Tshering, a health professional at the helm of governance is scanningn these irregular growth spikes. 

“When there are too many spikes in the electrocardiogram (ECG) of a patient, chances of heart failure is more,” Lyonchhen said.

One of the spikes, which is not quite obvious is the transition between end of one Plan and the beginning of the other. This, he said must change to fuel a sustainable economic growth.

The context here is that the country has experienced lowest economic growth after the end of every government’s tenure and it became more conspicuous after the onset of democracy. 

For instance, the four-year low GDP growth of about three percent was attributed to cessation in capital expenditure for more than six months during the election period. “The whole planning process must change. When the software of electronic devices like phones and laptops cannot be upgraded further, it is time to change the device,” Lyonchhen said.


If the sluggish economic growth is to be related with hydropower activities, it is proportionately associated. “For the last 40 years, hydropower has remained one of the key players in Bhutan’s economic development,” Dasho Penjore said. On the back of hydrology, the country has maintained an average growth of 7.6 percent for the last four decades.

When Chukha was commissioned, economic growth leapt to 28.7 percent in 1987. Likewise, in 2002, growth increased by 10.7 percent as Tala hydropower project commissioned, and in between 2007 and 2008, Kurichhu took the economic growth to 17.9 percent. 

Accelerating the construction activities in Punatshangchhu and Mangdechhu at once led to a 12 percent growth. The commissioning of Dagachhu triggered a furhter growth of eight percent.

Having hit a four-year low of 3 percent GDP growth, the RMA in its annual report has projected the economy to rebound to 6.7 percent driven primarily by the commissioning of Mangdechhu.

The low GDP is also attributed to poor hydrology contributing to a reduction in 15 percent generation, slowdown in hydropower construction activities, and declining investments in the sector by 56 percent. 

This was further worsened by the delay in the two Punatshangchhu projects.

This is why the governor said economic diversification was purposely enticed to cushion the impacts that comes with hydropower development.

The second trigger is the government expenditure. Beginning the fifth Plan, the RMA annual report states that there is big shift in budget. While the budget outlay has increased substantially, there has been a decrease in capital expenditure. 

For instance, 50 percent of the outlay of 10th Plan was allocated for capital expenditure, which decreased to 49 percent in the last Plan and 37 percent in the current Plan.

The consolation is that subsequent governments were able to meet the current expenditure from domestic revenue, adhering to the Constitutional mandate. Since the seventh Plan, more than 70 percent of the total outlay was met from domestic revenue.

Dasho Penjore said that this was a big achievement.

 Further, he said that tax reforms, which is under the scrutiny of the Parliament, would prepare the country for LDC graduation.

Domestic credit, being a concern for growing non-performing loans (NPL), is one of the drivers of growth in its own way.

A growth in domestic credit by 20 percent between 2018 and 2019 has contributed to the growth. The gloomy part of the domestic credit, according to the governor, is that it doesn’t generate employment.

A high NPL is often brought under the radar of various institutions, including the private sector itself. 

Dasho Penjore, during the launch of the RMA annual report, said that it was important to delve into the details.

The Royal Insurance Corporation of Bhutan (RICBL) alone has an NPL of more than 50 percent, followed by Bhutan Development Bank at 23.4 percent. The RICBL’s case pertains to various factors leading to mismanagement and embezzlement. 

BDBL has been catering the financing need of the rural populace and the bank has been financing 99 percent of the agriculture loans until the initiation of PSL. The rest of the banks had maintained their NPL below the threshold of 10 percent.

“The RICBL has been put under rehab and the their NPL this year has been reduced by half. RMA will render all its support and concessions to BDBL,” Dasho Penjore said.

The disturbing factor in domestic credit is consumption. Dasho Penjore said that if the economy produced enough for itself, then consumption would not be an issue. However, when consumption leads to higher imports, he said that it could distort the current account balance.

NPL in the service and tourism is as high as 30 percent of the portfolio. 

Some observers blame this on the government’s inability to monitor the hospitality sector. Reality, according to RMA, is different.

The boom in the hotel sector has contributed a domestic credit of Nu 35B while contributing to a growth of 7.8 percent in the service sector. 

This again, Dasho Penjore said, was driven by reduction in interest rate of 2.5 percent on an average and fiscal incentives.

Major defaulter in the service sector is the construction sector accounting for Nu 4B defaults compared with Nu 700M in the hospitality and tourism. When combined service and tourism has high NPL but it is also important to dissect the sector.

Even then, Dasho Penjore said that the central bank has never directed the financial institutions to stop loans in particular sector, but to tweak on the interest rates. “If a banks exposure on housing is high, that bank could increase the rate to 15 percent and subsidize on other products,” he said. 

The principle is that if hoteliers find it profitable to construct hotels even with a financing cost of 15 percent then banks should have the freedom to raise the interest rates.

In the end, what matters according the Dasho Penjore is that the orthodox way of making economic decisions will not work in the 21st century.