By TON Research Desk

The plague and the pandemic have severely affected the Bhutanese economy, impacting all segments of societal parity, and the national debt of the country stands at 130.9 percent at Nu 247.68 billion of its gross national product (GDP) in the first quarter of 2022.

An economy with one or few resources tends to be volatile and vulnerable. The productivity-led growth is more resilient, inclusive, and equitable which Bhutan needs to prioritize and pursue a fresh economic policy to overcome the financial debt.

Industrious growth can be encouraged by adding labor, money, and more competence to the economy. Bhutan should have policy and deliberations to classify productivity-led sectors to realize and endure firm financial progress.

Bhutan saw economic growth of 6 percent on average over the last three decades which is slow compared to the countries of similar economic structures and size. Bhutan’s financial growth is unstable because having a standard deviation of growth over regular growth, the capriciousness of 0.76 is meaningfully higher than other countries of the same economy size.

The swaying growth for a small economy is not a very stable economic growth. Bhutan’s economy shrank by 10.1 percent in 2020 due to the Covid-19 pandemic.

The economy of least developed countries grew in 2020, while the South Asian economy contracted by 5.7 percent, India by 7.5 percent, and the global economy by 3 percent, but Bhutan’s contraction was by a large margin. Bhutan faced more global shocks because of the tourism and trade sector in 2020.

The high external debt, he said, is an additional source of vulnerability. According to him, if the growth rate averages 5 percent during the next decade, the debt to GDP ratio would exceed 200 percent by 2030 and at that point, it will slow the economic growth and sudden shocks will exacerbate debt sustainability risks.

Hydropower’s share in total exports saw a significant increase from 33 percent in 2011 to 57 percent in 2020, but the share of non-hydro power export decreased from 25 percent to 11 percent which deteriorated the country’s balance of payments.

The in GDP calculation, the net exports are a major contributor to economic growth. However, it has not developed while imports have increased significantly. On the other hand, the agricultural sector employs nearly half of the workforce and is the smallest industrious sector in the Bhutanese economy. The hydropower sector employing about 4,000 people generated over USD 300 million of gross value added in 2020.

The productivity also decayed in the tourism and hospitality sector and was low in the wholesale, retail, industrial, and conveyance sector. Another challenge is that Bhutan has a small and remarkably slow-growing population and is one of the slowest rising populace groups in the world.

One of the tasks is that nearly 60 percent of Bhutanese living in the countryside areas produced 15.8 percent of its GDP-estimated GDP per capita in the rural economy compared with the national GDP per capita of about USD 3,200. GDP per capita in the urban sector is over USD 8,000. There is a large rural-urban revenue disparity, which will upsurge if rural efficiency growth continues to decay.

Bhutan requisite to detect new development areas to engross labor stuck in low productivity agriculture and tourism sectors and without hydropower, the economy would have contracted much lower than 10.1 percent and the central bank projected at -25 percent.

The Bhutanese economy faces challenges being an import-driven economy and faces the same deficit problems, which are highly present account deficit and internal deficit and Bhutanese Ngultrum being pegged with the Indian currency.

However, the government is trying to engrave monetary rules and options to push the driving factors of growth. The three triggers of the Bhutanese economy are the government’s capital expenditure, hydropower, and private investment.

As a fiscal-dominated economy, the private sector has very limited space for economic growth and the government has to be the driver until the private sector takes over the economy. The private sector is at a nascent state and the bureaucratic and licensing processes make it tighter and even deprive access to finance since banks find it risky.

Economic change is one of the solutions but it is very important to know the other sources of growth besides hydropower. More than 60 percent of the sectorial loans comprise the imports and consumption loans, which would be not helpful. However, these resources have to channel to productivity growth sectors to produce occupation.

At the moment, the central bank does not have money control and cannot pump as much liquidity into the economy because of the currency being pegged. “If the peg is distorted, we might have to pay more for hydropower debt.

However, financial inclusion, literacy planning, and policy considerations could play a significant role which will make the Bhutanese public and country monetarily independent and prosperous.