PM questions critics’ say on the economy

PM questions critics’ say on the economy

On what basis are people saying the state’s exchequer is almost empty, the PM retaliated

There are several dimensions to be considered in assessing and inferring about a nation’s economy and without doing this, people cannot just claim that the country’s economy is in the doldrums.  

This was told by Prime Minister (PM) Dr. Dasho Lotay Tshering to the Bhutanese media at the last Meet the Press of the Third Parliament on October 27, 2023, when questioned about words circulating that the country’s economy is in bad shape and the state’s exchequer almost empty.

Speaking about the pay hike of civil servants, which ranged from 55-74%, the PM questioned how a state whose exchequer is empty and economy in distress can manage to give such a raise. Underlining that the salary hike is the highest in the history of Bhutan’s pay revisions, the PM said that the raise was given as the state could afford it. 

Further, the PM asked the media to analyze the Gross Domestic Product (GDP) of the country, which he said is one of the primary yardsticks to assess a country’s economy. Additionally, he mentioned about the rise in GDP from -10 %. Bhutan’s overall economy leapfrogged from -10.2% in 2020 to 5.2% in 2022, marking a significant stride of 14.4%t in those two years.

The economy in 2022 experienced growth with a 0.8% point increase compared to 2021, as economic activities picked up on account of strong domestic demand and in tandem with global economic recovery.

He also mentioned about hydropower projects that have completely been initiated domestically, starting from the detailed project report (DPR), and spoke about the 32 megawatt (MW) Yunngichhu hydropower project in Lhuntse; 54MW Burgangchhu project in Zhemgang and the 18MW Suchhu project in Haa.

The PM said that the construction of these projects has begun, which would not have been possible if the economy was “as bad as people made it out to be.”  “You could ask the Druk Green Power Corporation Limited (DGPCL) if you need to clarify this,” the PM said.

Continuing on hydropower, the PM said the long-stalled Kholongchhu project is also about to kick start as DGPCL has bought back all shares from the Indian partner, which amounted to Nu 3.5 billion (bn). “The Dorjilung hydropower project will also begin with multilateral assistance from the European Investment Bank (EIB), OPEC Funds, and the Kuwait Fund. We have invested in Bitcoin also,” the PM said.

Additionally, the PM said that all these activities had been happening even as Bhutan fought the COVID-19 pandemic. He informed that the country spent Nu 13bn on fighting COVID alone, money that can build 10,000 km of base course farm roads. 

“The chain lock fencing to ensure that our farmers do not need to guard their fields and sleep peacefully has been completed in all 20 districts. Nu 20-25 lakhs is the cost incurred for one kilometer of such fencing and this will soon be replicated in gewogs, chiwogs and ultimately lands of individuals,” the PM further informed, reiterating that if the coffers of the nation is empty, all these activities could not have been done.

Reminding the media that the entire world’s economy has been affected after the COVID-19 pandemic, the PM said Bhutanese ought to think and question themselves how “we have managed to do all the above activities.” 

The PM had spoken at length about the economic scenario during the State of The Nation (SoTN) report 2023, during the 10th session of the Third Parliament that ended recently. The Parliament was informed that the country’s GDP per capita also rose to USD 3833. Likewise, the Gross National Income (GNI) per capita experienced a growth of 5.7% in 2022 due to a rise in the inflow of primary income compared to the previous year.

In 2022, the service sector demonstrated significant growth, expanding by 6.6%. It remained the largest contributor to overall economic growth, representing 53.5% of the GDP. The revival of hotel and restaurant activities, as well as the resumption of regular business operations in wholesale and retail trade was key drivers behind this sector’s growth. 

Driven by construction and manufacturing industries, the industry sector exhibited a growth of 5.6% in 2022, compared to 3.9% in the previous year. The sector’s contribution to GDP growth is estimated at 1.8% points. On the contrary, agriculture growth contracted by 1.2% attributed to an unfavorable harvest outcome and reduced production in livestock.

On the demand side of the economy, final consumption expenditure exhibited a growth of 3.1% contributed by household final consumption expenditure which was 5.5%. 

While export of goods and services declined by 8.1%, the import of goods and services increased significantly by 17.1% in 2022. The government expenditure for the fiscal year 2021-22 stood at Nu 69.39bn, a 1.4% decline from the previous fiscal year, accounting for 37% of GDP while the current expenditure stood at Nu 34.4bn.  

The PM informed the parliament that ‘escalating costs and disruptions in supply chains led to an upsurge in inflation during 2022, which was widespread, substantial, and continues to erode household purchasing power.’ While the overall annual average inflation fell from 7.4% in 2021 to 5.6% in 2022, it remained above pre-pandemic levels of about 2.7%. The increase in food prices remained subdued with easing of supply chain disruptions.

The month-on-month Consumer Price Index (CPI) also increased by about 1.3% from the month of June with an increase in both food and non-food prices.

Under the fiscal sector, total resources mobilized in the fiscal year 2022-23 was Nu 59.89bn, an increase of 10% compared to the previous fiscal year. Of the total resources, domestic revenue contributed 73.1% and the remaining of 26.9% was from grants and other receipts.

The monetary and credit situation remained favourable in the fiscal year 2022-23. Total deposits which constitute about 95 percent of the money supply grew by 10.4 percent. The contribution of net foreign assets, however, fell by 8.7 percent with decline in reserves as a result of deterioration in balance of payment performance.

Domestic credit growth determined by developments in the real sector and government expenditure increased by 10.2 percent in the fiscal year 2022-23. The total domestic credit outstanding was recorded at Nu 184.7 billion.

Banking liquidity at the end of fiscal year 2022-23 stood at Nu 10,139 million compared to Nu 24,445 million in the previous fiscal year.

Shedding some light on the expenses for the developmental activities being undertaken for the current fiscal year, the education and co-related sectors was allocated a total of Nu 946.57 million while a little more than Nu 2000 million is allocated for health and related sectors.

Budget for access to drinking water and RNR sector accounted for Nu 1500 million while trade and connectivity together summed up to Nu 3000 million approximately. Expenses for black topping of roads, energy and other miscellaneous activities completed the cohort.

Overall, the economy witnessed a broad-based recovery post pandemic era as activities regained stability and normalcy which was propelled by monetary relief measures and accelerated public expenditure. Sectors such as hotels and restaurants, construction, and wholesale and retail trade played a significant role in driving the economic upturn.

The PM had also spoken about other facets of the economy. 

Tshering Yangzom & Pema Tobgay from Thimphu