With the impact of COVID-19 on the economy following the second lockdown, professor in economics at the Royal Thimphu College. Sanjeev Mehta said the government should focus on productivity-related growth to help recover the economy.
He said the challenge is to ensure early recovery of the economy. “It is not an easy task. Countries throughout the world are struggling to stay afloat.”
According to him, the government should focus on productivity-related growth although the results would be visible more slowly than that contributed by fiscal stimulus.
“Fiscal stimulus would adversely impact fiscal sustainability and undermine long-term growth potential,” he added.
The professor stated that productivity-related growth includes strengthening the sectors which have potential to create jobs and boost productive capacity. “This will also boost aggregate demand.”
He said local-level mini-infrastructure projects such as irrigation, water supply, and others (which can be identified based on local needs) need to be developed using surplus labor.
“It will not only create jobs but also raise growth potential of the villages. It will allow extensive spread of scarce resources across the regions and promote balanced development. Quality of growth should take precedence over magnitude of growth,” said Sanjeev Mehta.
Earlier this week, Prime Minister Dasho Dr Lotay Tshering and the cabinet ministers met with finance officials to determine the overall economic scenario and understand the impact of the second lockdown.
The finance officials presented the estimates and simulation for each sector, while gauging the GDP growth and implications on employment around this time.
“As compared with the first lockdown that divulged valuable lessons, the preparedness to sustain trade and imports, and facilitation of all exports, had seemingly cushioned the impact this time,” stated the PMO’s Facebook page.
The discussion also reviewed the budget and expenditure so far. The PM reminded all the sectors that 2021 was crucial for economic recovery and insisted on effective implementation of capital investments.
Sanjeev Mehta said that any lockdown for an extended period would adversely affect economic growth. “Prolonged lockdown in Thimphu will lead to greater employment loss and growth reduction. The growth rate will bounce back as the unlocking takes place, yet we should be cautious in its interpretation,” he said.
He added that growth rates in times of severe fluctuations tend to overestimate recovery. “Growth rate just after a crisis period would be very high because of the low base, yet the economy may remain below the pre-crisis level.”
Meanwhile, the PM urged all sectors to revisit and prioritize activities that were new, innovative and effective to revive the economy. “More reviews and realistic assessments will be carried out over the days.”
Kinley Yonten from Thimphu