Sanjeev Mehta, who is a Professor of Economics at the Royal Thimphu College (RTC), talks to Business Bhutan’s reporter Dechen Dolkar on how the Covid-19 pandemic has affected the economy and what must be done for its recovery.
The Professor has been working in Bhutan for the last 28 years. In the first 15 years, he worked at the Sherubtse College in Kanglung, Trashigang. Since 2009, he has been working as a Professor of Economics at the RTC.
Q. In the wake of the second wave of Coronavirus ravaging the neighborhood, what kind of economic impacts should Bhutan brace up for in the coming weeks and months, or even a year or more, for that matter?
A. Path to recovery is likely to be challenging. I expect to have a ‘Z shaped’ recovery due to possible repeated lockdowns and disruption of the economic activities. It may sound little pessimistic, but the pandemic is going to have adverse effect on the long term potential GDP. The economy is likely to see a dip and then stabilize for some time at a lower level. The country should focus on reducing the size of Z, so that we do not lose out much on potential GDP. We need to prepare for lower growth targets.
Q. According to your analysis, which sectors of the economy are likely to get hit the hardest? And which sectors will/might recover the fastest and which the slowest?
A. Tourism is the worst hit sector and is unlikely to recover in the next few years. Informal sector, and trade in non-food items will also be badly affected. Indian situation may also adversely affect export of Ferro alloys, despite its current surge. Agriculture, food processing industries, will be quick to recover.
Q. The COVID crisis has left many jobless. How will the crisis, if it continues at its current pace, affect income inequality in the country?
A. Unemployment and underemployment caused by the pandemic will definitely push back the battle against poverty. Inequality usually does not rise during a low/negative growth scenario, like the current one.
Q. Global and regional supply chains have been disturbed, affecting supply of goods and services, and shooting up inflation due to the pandemic that refuses to cease. How can Bhutan protect its people, especially low-income groups from such inflationary trends and prevent them from reeling into poverty? (especially sharp shooting of the price of cooking oil and fuel in the recent times)
A. The only way to control inflation is to ensure that supplier charge a reasonable markup will be crucial to protect real incomes from dipping further. Otherwise in a situation of rising global prices, hardly anything a government can do.
Q. The ADB has a grim economic forecast for Bhutan, with the economy expected to experience negative growth (-3.5%) next year. In this context, what can possibly drive growth, if at all, and how can Bhutan stimulate its economy during the crisis to avert a major economic crisis?
A. We need to down scale some of the targets of the current five year plan (which are unlikely to be achieved under new situation), and release resources to tackle emergent issues- health and social security. Provide conditional income transfers to unemployed or underemployed people in exchange of work. Labor intensive infrastructural projects, especially for the agriculture sector, should be undertaken, which give assured employment to the displaced labor and ensure social security. Unconditional unilateral transfers to support social security may not be sustainable even in the medium period.