The Managing Director of Ugyen Trading Group, Dr. Damber S. Kharka talked to Business Bhutan’s reporter Dechen Dolkar about the country’s plummeting GDP growth rate and economic scenario.
Dr. Damber S. Kharka is an economist and earlier worked as a director with the Druk Holding and Investments (DHI). He has a master’s degree in Economics and holds a PhD in Finance.
Q. According to the National Accounts Statistics released recently by the National Statistics Bureau, the Gross Domestic Product (GDP) rate dropped to negative 10.08% last year, which is the lowest over the years. What is your opinion on this?
A. Not only in Bhutan, the GDP has gone down across the whole world except for one or two countries like China. They could manage a positive growth rate. But in our country we are very careful in terms of managing the pandemic.
We have undergone different series of lockdown and control or closed the borders more strictly than any other countries would have done. Therefore, our development activities have been impacted. Our export is impacted, import impacted, impacting all the developmental works inside the countries. So the country’s GDP is nothing, but it is the monetary value of the goods and services produced within the country for a particular period of time.
Now during this period, the growth is negative because our goods and services that we produce are less this year compared to last year by 10%. When the tourism sector was affected, everybody was making less income than the previous year.
We’re not able to import lots of developmental raw materials and labor, and the construction sector is also affected.
Therefore, all the avenues from where we used to make money are highly affected.
We’re lucky that we’re down by around 10 to 11%. Economy going down by 10% is not a disaster. Because the disaster would have been if we had opened the country with the hope of growing the economy. Then the disaster would have been to the people; the first resource that we have to safeguard is the human resources and I think the nation with the very wise leadership of His Majesty has done this.
The economy went down. But it will revive and come back in a few years and should not be worried about.
Q. Can we describe the economic growth rate of negative 10.08% last year as recession?
A. The term recession applies when there is a consistent downfall in the economy. But it is a one-time deepening because of the pandemic. But is this continuing for a very long time and is the economy already in a downturn? If it continues for a longer then it will be a recession. But I do not believe in this because now with the double doses of vaccination given and our neighboring countries are also doing that the economy will be more open. Of course, there will be more cautious than what it used to be during the pre-pandemic period. But yet, the economy will not be affected so much, therefore, this downfall in the economy will not continue long. I always foresee and I’m quite positive, because next year, our economy will recover.
The other thing is now the fuel prices are really going up. Most of the time, the recession also is created by the fuel stock in the world. Now, after the pandemic period, if this price controls happen, or if the production in the fuel oil producing countries goes up, then fuel price will normalize.
Q. What can be done now to revive the economy?
A. There are a few sectors that are very badly affected at this stage. We have to focus on those sectors. Gradually, we’ll have to open up our economy and the borders very cautiously. Our development activities like the construction sector on a priority basis will have to be restarted and will have to be expedited. If you look at the government’s capital expenditure, from whatever budget they had, they had not been able to implement.
Gradually, we also need to start the tourism sector and let it be more open. In terms of improving our economy, this pandemic has given us a lot of lessons. Our agricultural economy has not done badly because our production of food and vegetable items has gone up. But after the pandemic again, my own fear is that there is so much of this goods movement from India at a much cheaper price compared to our own productions. Therefore, to help our villagers or the farmers continue producing with the same vigor and interest, we should support them; there should be something called farm support price or our marketing of the agricultural products will have to be improved.
Q. What sorts of intervention and what sectors should we focus on to revive the economy?
A. The intervention in different sectors, in fact, has to come from the government policies in order to boost the economy or the production level in these sectors. In order to improve the economy efficiency, all the policies have to be right. The government is still confused as to the mining sector – on what kind of policies they should adopt. I think very sincerely we could think and think economically.
Now, when you have to improve the economy, improving the economy does not mean producing more alone. It also has something to do with distributional aspects. Our potential is basically in horticultural products, vegetables, organic vegetables and all that. But we have to network with the market, and also value additions and processing plants. Our farmers would not be able to do that. The government will have to really come into this and invest money in these kinds of things.
Q. How do you see the current arrangement of loan deferment and interest waiver?
A. It is an advantage at the borrower’s side and disadvantage for the lenders.
Because when there is a loan deferment, which means you are paying loan only later to the bank, the bank has less capacity to create money now because the money is not coming to you. So it will have a trickle down effect, the money’s effect on the production would be reduced.
And the other one is there is also a possibility for those borrowers to take advantage of the facilities. Some could take advantage of the facilities even if they cost the nation. People can save money as fixed deposit on the bank and fixed deposit is a cost to the banks.
Q. We have noticed an increase in inflation over the years. How does it impact the people?
A. Whenever there is an increase in inflation, a certain level of inflation is desirable because if the price goes down, nobody would like to produce.
If the price increases, more than what it used to be last time, then there is the inflation. But when there is high inflation, it will affect the consumers’ pockets.
Inflation, if it is growing fast, then it will really lower down the living standard of the people. It will bring down your real income, and the economy.
So consumers would really be affected and more effect would fall on the lower income group of people. So inflation is not good. But a certain level of inflation is again good from the production aspect.