Problems Faced by Bhutanese Economy

          Issues of Stabilization in Bhutan

Source

In today’s generation, the whole world is all the time in a state of dynamic. As globalization has been taking place since 1820s, all across the world. None of the countries have disagreed to join the international trade as countries realized, the beauty and aura of participating in the global economy and even Bhutan followed the trend of globalization. Due to scarce resources, economistsfigured out a single country cannot produce everything by their own. Thus, to maintain the economic stability, trade was initiated world widely where countries started to exchange the ideas, cultures, money and various factors of production. However, when these things have been transacted amongst nations, economists faced an issues of imbalance in fiscal policy, monetary policy and external sectors.

The disparity of fiscal policy in Bhutan is primarily, the impact of Covid-19 and the fiscal deficit in Bhutan is predicted at Nu. 15.329 billion (B), indicating the gap between the government’s revenue and expenditure. As a result, the current expenditure of Bhutan has been increasing more that the domestic revenue. Likewise, finance ministry states that Kholongchu hydropower project has escalated the debt to 130 percent of GDP. In 2019, the aggregate debt was Nu 182 B and in the following years, the total debt has shoot up to Nu 224.9 B in 2021. The other factor for the rise in government’s debt is due to incompletion of Punatsangchhu I because the government has been investing a huge amount of funds for the developmental purpose. Nevertheless, every problem has its own solution to dissolve. Consequently, the government needs to follow the expansionary policy instead of following neutral and contractionary policy as Bhutan neither have the situation of boom nor the equilibrium. The Bhutanese government is borrowing loans from Asian Development Bank (ADB) with 1.5 rate of interest which is an advantage for Bhutan to expand the fiscal policy in the domestic economy. In addition, Bhutan’s situation can be improved drastically if the Punatsangchhu I is commissioned which will definitely generate domestic revenue for the government and also boost the Bhutanese economy. Therefore, the government needs to set a target for government’s spending to overcome the fiscal deficit below 3-5 percent of GDP. (Subba, Kuensel, 2021). In other words, the government must utilize the budget domestically in a proper aspects and raise the domestic revenue as well. Eventually, the Bhutan can achieve the goal of self-reliance, which is on of vital pillars of Gross National Happiness (GNH).

An inequality of monetary policy in Bhutan has also degraded the Bhutanese economy because the tourism industry, construction sector, manufacturing sector and agriculture have been awfully affected by the corona virus. Despite having crisis of inflation in the country, Bhutan has applied the expansionary monetary policy to neutralize the finance deficit in the country instead of tightening the monetary policy which will be as same as adding fuel in the fire. During the pandemic, the farmers played a crucial role in the Bhutanese economy. Thus, Bhutanese were able to survive because the farmers were able to respond the needs of the nation on food production at least for local consumption though farmers were unable to sell their products to foreign nations because Bhutanese delayed to provide their services or to export their produce as agriculture workers were scared to travel in the high risk places especially in the South due to the spread of the virus. Additionally, the government has come up with an excellent program National Credit Guarantee Scheme (NCGS) to aid and register for credit facilities, exclusively to enhance Cottage and Small Industries (CSI) and medium industries because the banks have generated the capital of Nu 3 billion (B) for the borrowers to lend the money and also to motivate the entrepreneurs domestically during the rainy time of pandemic. The budget has been allocated properly in different fields with an objectives such as maintaining the sustainable economic growth and stability, to gain confidence of the public, switching the health and systems of education, extending the ICT and to reform various initiatives and innovations in the country. Subsequently, country can recover from recession, if the five above objectives can be fulfilled without any failure. (Subba,Kuensel, 2021).

The disproportion in external sectors has also declined the Bhutanese economy because of unfavorable moves in exchange rates. Likewise, Bhutan has less comparative cost advantage and less absolute advantage meaning the Bhutanese cannot compete in the international market, in terms of cost and quantity of goods with third countries. As a result, the Bhutan has been always having negative balance of payments that is in the form of transactions accounting of a year. Nonetheless, if the ministries can perform various activities such as mastering the trade and investment for relative agencies, managing the policy advocacy, enhancing the investor targeting, making use of latest sophisticated techniques of production and also by tightening the intervention of bureaucratic barriers to foreign and domestic investment. Moreover, Lyonpo Loknath Sharma suggests that ICT will be the alternatives to solve the issue of shortcomings of international trade of Bhutan. Similarly, to maintain the consistency, proper communications, trade deals and interrogations amongst uncommon nations digital computing must be the solutions and the main key, in order to widespread the international trade. In other words, globalization can also take place digitally without having much physical contacts. (Subba M. , Kuensel, 2021)

In a nutshell, in present era of pandemic. Developing country like Bhutan has been adversely affected because Bhutan did not have capability on self-sufficiency which resulted to have negative balance in fiscal spending, negative in central bank financing as well as international trade. However, contacting physically was equally important to every traders but at this time, being more digital has become more significant especially in today’s generation. As it is makes the work and deals of every country easier and convenient as well. Therefore, to have the neutral stability in the country. A country must have ideas to interact digitally. Indeed, digital trade is much quicker and beneficial for trade purposes.

                                References 

Subba, M. (2021, 5 12). Kuensel. Retrieved from Ailing econmic indicators: https://kuenselonline.com/ailing-econmic-indicators/

Subba, M. (2021, 6 17). Kuensel. Retrieved from Current expenditure increases than domestic revenue: http://kuenselonline.com/current-expenditure-increases-faster-than-domestic￾revenue/

Subba, M. (2021, 6 10). Kuensel. Retrieved from Economic and finance committe points out issues of budget allocation: https://kuenselonline.com/economic-and-finance-committe￾points-out-issues-of-budget-allocation/

Subba, M. (2021, 7 7). Kuensel. Retrieved from Trade study finds Bhutan as capital-rich, labour poor and unskilled country: https://kuenselonline.com/trade-study-finds-bhutan-as￾capital-rich-labour-poor-and-unskilled-country/

Subba, M. (2021, 4 17). Kuensel. Retrieved from Economic affairs ministry achieves significant mid-term progress: https://kuenselonline.com/economic-affairs-ministry-achieves￾significant-mid-term-progress/