Bhutan’s ambitious economic plans can materialize. However, there are critical policy interventions required, beginning with policy certainty, bringing in more foreign direct investment (FDI) and strengthening the private sector.
The above and more have been elucidated by the Asian Development Bank (ADB), World Bank (WB) and even by the Bhutanese government. But nothing appears to be happening at the ground, concretely.
Economists define policy uncertainty (also called political/regime uncertainty) as a class of economic risk where the future path of government policy is uncertain, raising risk premia and leading businesses and individuals to delay spending and investment until this uncertainty has been resolved. Bhutan certainly does not have regime uncertainty. We are way ahead of many countries and perhaps at the very top when it comes to political stability. With His Majesty as the Head of State, political stability is ensured.
Nonetheless, we have shown the world that our policies can be uncertain. Notwithstanding the factors behind it, the increase in sustainable development fee (SDF) for tourists to USD 200 and now back to USD 100, even though temporal, is an example of policy uncertainty. And mind it! The world is watching what may happen to the SDF after December 31, 2023.
The Banks have also said that if the private sector remains like it is now, it will be challenging for the government to achieve its ambitious economic goals. Private sector development in Bhutan has stalled despite it being envisioned as an engine of growth. The ADB has said that the urgency of private sector development is greater than ever, due to factors like the ongoing mass emigration.
One common thread that the Banks elude to is state-owned enterprises (SoEs) competing with the private sector. Most of the SoEs under the Ministry of Finance (MoF) run at a loss. Apart from this, they compete with the private sector or take away ventures that the private sector can run and thus help economically. As per the SoE report 2020, the Royal Bhutan Helicopter Service Limited’s loss was Nu 63 million. We understand that social responsibilities lead to these figures. However, can’t the government privatize this, with conditions that when urgently required they will need to be social actors too, with a subsidy?
One herd mentality we have is that if privatized everything will go to the hands of those who are already rich? The world has transformed. Money matters, but more that money, innovations matter. And today, we have very innovative youth who want to realize their potentials but cannot as they do not get opportunities; for instance to take up one of the SoEs running at a loss.
SoEs under Druk Holding and Investments (DHI) are also competing with the private sector. Lately, they have cited moratoriums issued and the need to explore other measures for sustenance as reasons for undertaking ventures that do not suit them. A classic example is the State Trading Corporation of Bhutan Limited, which sells household essentials; Menjong Zorig going into herbal tea and other “Brand Bhutan” items. The list continues.
Yes! Bhutan’s private sector, especially in the construction sector had NPL issues. But one issue does not make the entire industry incapable. Cottage and Small Industries (CSIs) once put up to the highest pedestal are today dying. It does not mean that the government should provide handouts. As said by the ADB and the WB, opportunities should be provided, in areas that can make money. Assistance can come in different form. And at this stage, the roles of the private sector are immense.