Is Bhutan experiencing a K-shaped economy recovery?

Demand and consumption are going to zoom or bounce only is there’s equitable growth, economists say

As economic activities in the country start to get momentum, government officials claim post-pandemic economic recovery to be V-shaped. However, critics and local economists argue that the case will be otherwise.

A few economists suggest that Bhutan’s economic recovery will be K-shaped as it has recovered only partially, which is contrary to the government’s claim.

According to senior economist Dr. Damber S Kharka, a V-shaped recovery is when the economy rapidly recovers at the same rate at which it went down.

“This is what happened to Bhutan during the first lockdown of Covid,” he said.

However, a K-shaped recovery is one in which the performance of different parts of the economy diverges like the arms of the letter “K”.

This means that the economic performance of different sectors, industries, and groups within an economy always differ to some extent, but in a K-shaped recovery, some parts of the economy may see strong growth while others continue to decline.

Understanding what K-shaped recovery means, some economists say it’s a situation when some sections of the economy have recovered very well whereas there are certain sections that have not recovered well.

“There are a few sectors that are very badly affected at this stage. We have to focus on those sectors. Our development activities like the construction sector on a priority basis will have to be restarted and will have to be expedited,” Dr. Damber S Kharka said.

‘If we look at the government’s capital expenditure, from whatever budget they had, they had not been able to implement,” he added.

He said that recovery in Bhutan has been partial.

“Passenger cars are being sold, rich people are buying flats – Nu 1-10mn flats in Thimphu. If Bhutan wants to grow, we should have an equitable recovery. Demand and consumption are going to zoom or bounce only if there’s equitable growth.”

“I think provided investment in potential economic sectors must take place immediately after the pandemic. Therefore, I see it will be the U-shaped recovery happening in terms of the overall GDP growth,” the economist said, adding that if the government had invested substantially in areas with a low gestation period during or just before the pandemic, then it would be a V-shaped.

An official from the Ministry of Finance (MoF) said that the country’s economy has recovered substantially from the pandemic-induced disruptions and expressed hope that the recovery will be sustained and the growth rate of 3.5% to 4% will be restored in 2021-22.

The Bhutanese economy recorded a growth of negative 10%, which is a 16% drop as compared to a growth of 5% in 2019, as per the national account statistics 2021.

According to the report, Bhutan’s Gross Domestic Product (GDP) dropped to Nu 171.57bn from Nu 178.56bn in 2019, which is a contraction of Nu 6.99bn. Similarly, the Gross National Income (GNI) of the economy contracted by 7.23%, a drop of 13%. 

The country’s economy is import driven and the export of goods has dropped during the pandemic. Almost Nu 48bn worth of goods have been imported and export has dropped to almost Nu 28bn in 2020. 

“However, indicating that economic activities are happening in the country at the pre-pandemic level, the recovery will be V-shaped,” the official said.

However, local economists opined that the government and overall businesses are facing a tough situation with high inflation.

“The point is that we have seen a K-shaped recovery recently. We mean that there are certain sectors doing well, some remain stressed and others are not able to come back to their pre-Covid positions,” another local economist said.

“People relating to IT, technology companies, those who are engaged in E-commerce services, they have shown tremendous growth,” he added.

“But people in stressed sectors like travel, tourism, hospitality, and even the education sector have fared badly despite the fact that online classes have been started but the fact remains it is only catering to limited levels.”

According to the economists, the activity in the largely informal sectors of trade, hotels, and real estate is still significantly below 2019-20 levels. The signal coming through these patterns is that the formal sector is showing signs of recovery but not the informal sector.

Regarding the rising inflationary trends, Dr. Damber S Kharka said inflation is a concern in every country, and it would be hard for India to be an exception.

The prices of consumer goods and services rose 5.95% in the month of May compared to the same month of the previous year. Food prices went up by 3.52% during the same period, while non-food recorded a higher increase at 8.05%.

However, non-food contributed to 71% of the total increase in May, while food accounted for 29% of the inflation. The transport sector continues to be the main driver with a 15.46% increase, followed by clothing at a 7.80% increase.

Kinley Yonten from Thimphu