Bhutan needs big investment in right sector

A substantial growth rate of 10% or better is needed in the coming one to two years to catch up to the GDP of 2020 level, according to Dr. Damber S. Kharka

With the economy at a crossroads, big investment in the right economic sector is the only way forward for the government to revive the economy of the country, according to an economist, Dr. Damber S. Kharka.

With this, he shared that the government can get the economy back to the 2020 level and beyond in a couple of years.

“Or else it will take more than years to get back to the pre-pandemic period of economic prosperity. The government needs much more than the usual annual investment size to be made in the economic sector preferably with a low gestation period where returns are quicker to catch up to the GDP 2020 level,” he said.

As economic growth plunged to -10.8% in 2021, the economist said, “It means for every Nu 100 of the GDP, we are reduced to Nu 89.2.”  

The government has, however, expected to rebound the economy of the country by 4-5% in the FY 2022-2023.

According to the economist, by the end of 2021 if the economy grew by 3% as claimed, the 3% growth is a reduced figure of Nu 89.2. So, this way, the marginal growth rate will take some more years to reach back to the GDP level of 2020.

“We need a substantial growth rate of 10% or better in the coming one to two years to catch up to the GDP of 2020 level,” he shared.

Dr. Damber S. Kharka further said that it is not possible to afford big investment amounts in the coming one or two years on our own with the internal financing sources.

“The inflow of capital from external sources has to be much bigger. The usual grants and debt inflow won’t suffice. So we have to go for courageous debt financing. But remember our debt to GDP ratio is already alarming, about 120%,” he said.

He said that the major debt in self-financing projects from India is the pressure on debt servicing repayment, which may not be as pressing as some countries in our neighborhood have faced.  

“Some people talk about deficit financing and liberal bank loans to facilitate public and private investment. We know our banks have excess liquidity; so why not go for liberal loans in the investment sector,” he said, adding that this will be counterproductive at this stage.

Firstly, with the high Non-Performing Loans (NPLs), the economist said that the Royal Monetary Authority has already suspended the loan disbursement of three financial institutions for this reason.

“Secondly, our foreign currency reserve is not in a position to support imports that will be needed for investment projects,” he said, adding that in this situation, forex and INR debts will be key to pushing investment beyond our normal investment rate.  

Meanwhile, with the impact of inflation, investment is hit as intermediate goods and raw materials that are needed for investment projects and manufacturing industries have become costly. 

The economist shared that the consumer sector is affected as the price level has gone up and the same consumer basket is taking out more money from people’s pockets now. 

“Our third country imports have become costlier due to a fall in INR and consequently the Ngultrum value,” he shared.

Kinley Yonten from Thimphu