The country features on World Economic Freedom for the first time
Ranking: Bhutan was declared as the 87th freest economy among 157 countries and territories gauged by Fraser Institute, a Canadian public policy think tank.
The degree of economic freedom in the country is the best among South Asian nations and well above giants like Russia (99th), India (114th), China (111th) and Brazil (118th).
However, in some measurements such as government consumption, government enterprises, freedom to own foreign currency bank account and freedom to trade, Bhutan falls below the regional or global average.
Economic freedom of the world measures the degree to which the policies and institutions of countries are supportive of economic freedom. In other words, economic freedom is present when individuals enjoy right to choose their trade, market, transactions and resources, without use of violence, theft and fraud.
Government’s role in economically free nation is limited to protection of people and their property by upholding rule of law. Lesser government intervention in business is preferred.
Launching the economic freedom of the world (EFW) report at the second day of Economic Freedom Network Asia conference yesterday, the economic affairs ministry’s joint secretary, Sonam P Wangdi said the result was not a surprise.
“We are happy with the ranking but more than this improving the investment climate is more important for us,” he said.
He acknowledged that economic freedom index is lot broader than World Bank’s ease of doing business index, which is more relevant to limited liability companies. “But the two indicators are divergent in terms of freedom to trade and trading across borders”
He highlighted on the reforms that government is currently undertaking. He said the country’s FDI policy is one of the most liberal policies in SAARC and that the economic development policy, which is under review, will emancipate many “game changers”.
The Bhutan Chamber of Commerce and Industries (BCCI), secretary general, Phub Tshering said that with freedom comes innovation.
“But freedom also comes with responsibility and it entails us to do ethical business,” he said.
One area where Bhutan has performed well above the world, regional and landlocked countries and perhaps surged the country’s ranking was on the front of rule of law. Economic freedom is more in nations where people and properties are protected from crime by law.
Should Bhutan improve further, the Fraser Institute fellow who manages the World Economic Freedom Network, Fred McMahon, said the country should capitalize on niche market for economic gains and prosperity as well.
“Bhutan has so much to sell, it’s a global brand that sells,” he said. The niche, he mentioned are in the areas of agriculture, handicraft and opening up of tourism further.
“Bhutan is never going to be manufacturer of cars, refrigerators and electronics but you need resources to buy them,” he said.
The emphasis, he said should also be on free market because it drives growth and economically free nations acquire prosperity that improves living condition of poor. Stable democracy, as in the case of Bhutan is also important for economic freedom.
The economic freedom index measures the level of freedom in five major areas further categorized into 24 components and 42 variables.
The country was rated poor when it comes to government consumption as a share of total consumption in the economy because of huge government spending on imports related to both hydro and non-hydro commodities.
The EFW report stated that when government consumption oppresses private and household consumptions, it is indicative of preference on political choice over personal choice and hence lesser degree of freedom.
The founding partner of QED group, Sunil Rasaily said government owns most big companies and the entire hydropower sector in the country, making government’s contribution to GDP very high.
This has pulled the country’s rating on government enterprises because it is believed that state enterprises operated in protected market and not dependent on investors for capital. “Economic freedom is reduced as government produces a large share of total output,” the report stated.
Sunil Rasaily said to improve economic freedom in this front, the government should allow more private participation in the economy or even consider divesting shares of state enterprises to public.
While the country was assessed relatively well in terms of money growth and inflation, it scored zero for freedom to own foreign currency bank account. These parameters determine sound money, in which the country is rated below the global average.
However, with regard to regulations, Bhutan was placed way above other SAARC nations and global average. This means that the country has been able to regulate the credit market well with favorable labour and business regulations. This reduces bureaucratic procedures and allows market forces to determine wages.
The report also established that economically free nations out-perform non-free nations in indicators of wellbeing. Political and civil liberties are considerably higher in economically free nations. Life expectancy of the top quartile free nations is 80.1 years against 63.1 in the bottom quartile.
Meanwhile, Bhutan is featured in the index for the first time since the first publication of EFW report in 1996. The EFW launch in Bhutan will be an annual event hereafter.
By Tshering Dorji