Govt. working towards comprehensive economic reforms package

The economic growth target and projection for this year is 5%, according to the MoEA

As the restrictions of the Covid-19 are being eased, the government is also working towards a comprehensive economic reforms package for the country, according to Economic Affairs Minister Loknath Sharma.

For this, the government’s focus will be on employment generation, export promotion, import substitution and automation, and digitalization of the economy in the country.

The Economic Affairs Minister divulged that the economic revival will be based on the four primary principles outlined by the government, which are employment generation, export promotion, import substitution and automation, and digitalization of the economy.

“Learning from the experiences of countries who have managed COVID-19 well while opening and relaxing restrictions, the government is also taking a similar approach to opening up the economy by relaxing restrictions,” Lyonpo said.

To achieve these objectives, Lyonpo explained that the government is also working towards easing regulatory procedures and creating an enabling environment for businesses, investment in productive sectors, enhancing access to finance, entrepreneurship programs and skill development, stimulus spending, focusing on areas such as manufacturing, construction, tourism, agriculture, and mining, among others.

“With the easing of restrictions, people can resume most of their pre-pandemic lives and businesses, and the government is working on measures to support the opening and resuming of businesses at the earliest possible to get the economy on track,” Lyonpo Loknath Sharma said.  

The minister added that the targeted interventions and measures for the revival of the economy are being worked out in close consultation and collaboration with the relevant stakeholders.

“The step-by-step procedures at these scenarios are ever-evolving and the strategies need to be dynamic. Most of the construction works are expected to resume, besides the import and export, with very few limitations,” Lyonpo said.

However, the government is concerned with the current state of the economy and working on ways for economic reforms and support measures to help revive economic growth.

According to the Ministry of Economic Affairs (MoEA), the economic growth is targeted and the projection for this year is 5% and the government needs to work towards even higher growth rates to recover the lost two years of the pandemic and to put the country back on the high growth rate.

To achieve this, Lyonpo said that all key economic agencies in the country are working together and the Royal Monetary Authority (RMA) is a key agency as it oversees monetary policies and works with financial institutions on how best to support the economy.

Meanwhile, the MoEA will be supporting all economic activities that have the growth potential, and targeted interventions and measures are being worked out in close consultation with the relevant agencies for economic revival. 

“The mandate of monetary policy is with the RMA and the government is closely working with the RMA to ensure affordable access to finance for businesses,” Lyonpo said, adding that this will contribute towards spurring economic activities and help the economy to grow.

The minister added that investment opportunity is not only about interest rates but many other factors, including barriers to entry, ease of doing businesses, policies and regulatory framework, etc.

“We need to also ensure existing industries and businesses thrive and pick up soon while making way for new entries,” he said. 

Further, Lyonpo shared that the banks do show excess liquidity which is because of risk and uncertainties in investment owing to the pandemic which should gradually improve, and credit must flow and multiply to achieve economic benefit.

What an economist says: 

To revive the economy, an economist, Dr. Damber S. Kharka, said that the government should allow the economy to move forward by lifting the movement restrictions.

“Production and service centers should be allowed to operate at full capacity following COVID protocols. Let the people themselves adjust with the pandemic.”

He added, “When the legs and hands are tied, we can only roll our bodies back and front. The economy is rolling backward which is why we reversed our growth by -10.18% last year.”

“I don’t think we are doing any better this time since even the hydro sector that was unaffected had to close down one of its major plants for a few months due to technical problems.”

Further, Dr. Damber S. Kharka said on the supply-side, the economy is highly affected due to restrictions on the mobility of intermediate goods to production centers and finished goods to the consumers’ market. There is a distortion in the supply chain and the government should address strangulated supply chains first. 

“Secondly, reduce the interest rate, so that it encourages investment that in turn brings about more production provided that materials and laborers are allowed to freely move and work,” he said.

“This can also address unemployment gradually. Today, due to frequent lockdowns we have created a situation where a labor force has become an unproductive consumer. This should immediately be addressed, in my view.” 

According to Dr. Damber S. Kharka, to reverse the economic downturn, the government should invest and also encourage the private sector to do so in the construction industry. 

“Many of the infrastructure projects have fallen behind. The government spending on the capital budget is unsatisfactory due to restrictions. Planned projects should start functioning with increased speed. Private construction companies’ problems should be looked into particularly the labor, material transportation, and financial issues,” he said. 

He added that the manufacturing sector, although, in theory, they are allowed to operate in containment mode and the speed they can work is curtailed by more than half due to the supply chain distortion. 

He shared that financial institutions are affected right now due to loan deferment and the government bearing 50% of the interest cost. Borrowers who can service the loans are also fixing their money in fixed deposits as it makes financial sense to them. 

In contrast, Dr. Damber S. Kharka said it is a cost to the banks and the national exchequer. As soon as the economy is opened the borrowing mechanism will be back to the normal banking norms.

“Banks have excess liquidity since investors do not take loans now since the productivity of loans is poor as a result of supply chain effects. This has to be corrected,” he added.

Kinley Yonten from Thimphu