When the rooster pecked the economy

YEARENDER:

The rooster began crowing at the peak of dawn when it felt the impact of putting all its eggs in one basket.

Such is the saga of the country’s economy.

Investment in hydropower sector was clichéd as putting all eggs in one basket but at the same time, there was a dearth of other baskets.

The impact seemed obvious given the delays in construction of two mega hydropower projects of Punatshangchhu and its cascading effect.

The government came on record stating that the pledged 10 percent average growth during its tenure is unachievable. The fiscal target set for the 11th Plan fell short, as all projects got deferred to the next Plan. It affected civil servants, particularly the officials in department of hydropower and power systems, in achieving their APA targets. They claimed that pegging their performance with hydropower development was unfair, as the department has no stake in these projects’ construction.

The country’s external debt swelled to 120 percent of the country’s GDP. Of the total debt of Nu 171B, more than Nu 112B are for hydropower. Two major projects are yet to recover from the geological surprises they faced in the past leading to huge cost escalation. Kholongchhu project too could not take off due to issues on Indian regulation on cross border electricity trading while Nikachhu saw its contractors failing to mobilise fund.

Besides the demonetisation process in India that hit businesses at home, the introduction of goods and services tax has put a temporary halt to international trade. Local beverage, cement ferrosilicon and distilleries are mired in confusion about GST even as the country embraces the earth male dog year.

GST saw vehicle import reaching a staggering number. With excise duty subsumed under GST, fuel price dropped by Nu 10 for petrol and Nu 7 for diesel. The government announced to pass on this benefit to the people as a gift on 11:11am, November 11.

But it stimulated the central bank in tightening the credit on purchase of vehicles and the government shifting the point of taxation from point of sale to point of entry.

On a positive note, even with World Bank coming up with a downward revision of the growth projection, the IMF has declared the country as the third fastest growing economies. Monthly inflation was subdued below five percent during the entire year.

As the country walks the last mile of the LDC status, record high budget of more than Nu 60B was allocated for the last fiscal year of the 11th Plan, meaning that the country can anticipate multiple capital works in six months.

The rooster year however proved fruitful for the central bank in its financial inclusion drive. It received recognition from the throne. Lending rates of the banks fell by almost two percent. It has launched a preferential lending for youth seeking jobs abroad and banks pursued digitisation aggressively to reach the unbanked populace.

The priority sector-lending scheme was launched to promote commercialisation of agriculture activities and cottage and small industries. While the central bank and the financial institutions are prepared to disburse Nu1.5B, the dzongkhag PSL committee seems lagging despite the Cabinet’s order. The scheme is backed by the fiscal incentive Act that provides tax breaks for banks lending towards these sectors.

As the rooster episode neared its end, the electricity export tariff for Chhukha was increased by 30 Chheltrum, bringing in additional revenue of Nu 482M.

This will add to the domestic revenue, which fully covered the recurrent expenditures, and about 21.6 percent of the total capital expenditures of the government.

However, revenue is mainly driven by the hydropower sector and delays in commissioning of the projects still pose huge impact on the domestic revenue and negatively affect macroeconomic prospects in the medium term.

The effort to diversify the economy and to promote private sector development fiscal stimulus package was introduced. Would the dog year be conducive to witness translation of incentives, initiatives and reforms into productive investment, employment and economic growth?

Tshering Dorji

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