Putting the economy back on track – a challenge that awaits

There are just few months left for the Druk Nyamrup Tshogpa’s tenure to end. The National Assembly (NA) elections to be held later this year will determine which party comes to power. Notwithstanding whether the DNT comes back to power or one from the other four parties get the mandate, one of the biggest challenges that the new government will face is bringing Bhutan’s economy back on track. 

This challenge is augmented by the fact that an ambitious target has been set for the country. The target envisages to increase GDP from USD 2.5 billion (bn) to USD 5bn by 2029, and USD 10bn by 2034.  Further, the GDP per capita is to be increased from USD 3400 to USD 4,256 by 2029, and above USD 12000 by 2034. Full employment (97.5%) with quality jobs by 2027 and quadrupling income of the bottom 40% by 2030 are other economic targets.

In the face of shrinking domestic revenue, increasing trade deficits, non performing loans (NPLs) and other economic issues, the central bank and the government of the day have had to come out with unprecedented monetary and fiscal measures. Moratoriums have been issued and other measures taken. However, experts opine that these are temporary measures and the country needs instruments that will generate revenue immediately, including measures for the long term economic benefit of the country.

Though presidents and candidates of different political parties have been going around the country, nothing has been said about their pledges, due to the Election Commission of Bhutan’s (ECB) rules and regulations. As of now, the two new political parties, Bhutan Tendrel Party (BTP) and Druk Thuendrel Tshogpa’s (DTT) interactions with the people have been centered on introduction of the parties, presidents, candidates, visions and why they have entered the political battle. Similarly, the other three old parties have not yet revealed their economic plans.

According to a financial expert, any incoming government should focus on empowering Bhutan’s private sector, a subject that has been discussed for many years. Currently, the private sector is dominated by small and medium enterprises that operate informally and their growth is limited due to challenges in accessing long-term capital and inadequate business setup. Financial institutions remain the primary source of funding for the private sector, but obtaining long-term funds has become increasingly difficult due to strict collateral requirements. This situation poses a significant hurdle, particularly for micro and small businesses seeking to expand and sustain their operations by accessing credit.

The expert highlighted that financing in such a risk-averse credit environment has become prohibitively expensive for the private sector. Consequently, potential projects that could contribute to employment generation and economic growth has remain unexplored.

Another critical issue is the lack of financial intermediaries such as angel investors, venture capital firms and private equity fund, which hampers entrepreneurs’ ability to scale up and seize opportunities offered by the market. 

He said that one of the ways to empower and encourage the growth of private sector is to develop the capital market. Capital market serves as a vital enabler for the development of the private sector by providing access to capital, fostering innovation, boosting competitiveness, and facilitating expansion and growth opportunities. It creates an ecosystem that encourages entrepreneurship and helps private companies reach their full potential in contributing to economic growth and development. However, in our case the dominance of family-owned or sole proprietorship businesses adds another layer of complexity to the situation. These businesses frequently opt to remain private due to apprehensions about the current tax system. The burden of compliance and the problem of double taxation serve as deterrents, preventing them from exploring the opportunities provided by the capital market.

The expert stressed that unless the government formulates a well-defined strategy to promote the private sector and actively involve them as partners in the mainstream developmental process, the private sector’s role will remain undermined. The emphasis is on the need for a clear and purposeful approach from the government to empower and collaborate with private businesses, recognizing their potential contributions to economic growth and development. Without such strategic support and partnership, the private sector may not be able to fully realize its potential in driving the country’s progress.

He further underlined that a significant portion of the large companies in the current market are State Owned Enterprises (SOEs) that offer essential services. These SoEs operate in strategic sectors like energy and communications, which hold national importance. However, he suggested that the government should also consider divesting non-strategic companies that require substantial funding and have growth potential.

By divesting non-strategic companies, the government can increase the diversity of the stock portfolio in the market, leading to broad-based ownership. This move would not only enhance transparency and accountability but also improve the efficiency of SoEs. Additionally, such measures can boost public confidence in the performance of these enterprises. The divestment strategy can bring positive effects on the overall economy and foster a healthier and more dynamic private sector.

Foreign direct investment (FDI) was also cited as a means of injecting money into the economy. The expert said that the government should assist private sectors in bringing FDI. “Bureaucratic red-tape should be reduced. The government should study areas which are conducive for FDI and accordingly create an environment which will attract FDI. It is not happening now,” he said.

Talking about the rural economy, he opined that governments have not succeeded in helping farmers in the post harvest period. “Agriculture products should be standardized so that value is added. This it-self will make finding markets easier and farmers will be encouraged to produce more.”  He said that instead, there are a lot of restrictions imposed beginning from the local government to district authorities and the center. “Even for establishing an irrigation channel, to begin a green house or to cut down a tree in the middle of a field, people need to go from pillar to post. It is the same with FDI. There are just so many rules, which need to be studied and some done away with.”

Concerning tweaking the sustainable development fee (SDF) for tourism, which some say “is the means to generate revenue immediately,” the expert mentioned that the country’s infrastructure should be studied. “Do we have what is required to host 10,000 high end guests immediately?”

Meanwhile, he added that the economy is at the core of all issues that the country is today confronted with. “If the government has not been able to retain civil servants, it is because of the economy. If there has been several people migrating overseas, it is because of the economy,” he said.

A politician from one of the political parties had said that the government elected by the people towards the end of this year “will have sleepless nights mainly to rectify the economy.” When asked to comment about it, the expert said. “He is true. It is a challenge, but not something that cannot be done.”

Ugyen Tenzin from Thimphu