While the government’s achievements of one year in office are centred around building the foundation for the coming years, macroeconomic indicators show signs of a slowdown.
Since November last year when the government took office, until last month, about 12 treasury bills (T-bills) were auctioned amounting to more than Nu 45B. In 2018 alone, the government floated about 13 T-bills amounting to around Nu 30B. In 2017, more than 20 T-bills were issued. However, the amount was less than Nu 20B.
The T-bills are short-term government debt with a maturity of maximum of 90 days. It is usually floated to keep government’s cash flow afloat or when there is a shortage in government’s cash flow. For instance, if the government requires Nu 100M to fund a project committed by a developing partner but it is yet to receive the actual money, It will auction T-bills, where the local investor, particularly the financial institutions would bid based on the coupon rate, which is the interest rate. The government will refund money when the donor fund is released and pays an interest on it, usually around one to two percent.
This means that the government cash flow has struggled to remain afloat because of the transition between pervious and current Plan. Lyonchhen Dr Lotay Tshering said there were no capital budget for about five months, since there was time lapse in implementation of the 12th Plan and change in government.
While the rupee reserve increased from Nu 156B in November last year to Nu 176B as of June this year, the country’s external debt saw an increase from USD 2.5B in December 2018 to USD 2.7B until July this year.
The trade deficit was observed at Nu 30B in 2017-18 fiscal year and its projected to increase by Nu 7B in 2019-19. Likewise the current account deficit has widened by almost Nu 10B in the same period.
Foreign direct investment saw an marginal increase but in terms of number it has not increased. Remittances on the other hand has slowed down. In 2018, the economy saw an inward remittances worth Nu 3B, which stands at Nu 1.5B in the first seven months of 2019.
All these figures are according to the statistical bulletin of the Royal Monetary Authority.
The country’s ranking on ease of doing business has also slipped by nine places in 2018.
Acknowledging the fact that some of the macroeconomic indicators are not progressive, Lyonchhen Dr Lotay Tshering said that it wouldn’t be fair if the government dissociates itself from these figures. “Any party in power will be blamed for the slowdown of the economy,” he said. “But saying that this government is not doing enough on the economic front may not be true.”
The ease of doing business, he said is based on assessments of the past, when the party was not even in power.
Certain facts such as the strong correlation of the Bhutanese economy with that of the Indian, he said are beyond the control of any government. “I have already talked with the economists from economic affairs and finance ministries and the RMA, and they too said there is nothing much the country can do,” he said. “But we will sit together and study the issue.”
At a time when growth in India is slow, Lyonchhen said Bhutan can only hope for it pick up. “But we must understand that neither a speedy growth nor a slowdown in India is good of us.”
“It is not because of the lack of intelligence on the government’s part,” he added. For instance, he said the GST has affected the small export segment of the country. Because GST is designed to boost Indian export and limit import towards India, he said the impact is unavoidable.
While a private sector development committee has been instituted, Lyonchhen said that he is yet to receive their recommendations. “Future is not very clean for a small economy that is competing with industries across the border,” Lyonchhen said. “There is no magic bullet.”
However, he said the country must promote private sector at domestic level, not just for export but most importantly, substitute imports. This, he said will be helpful for the economy to dodge the external shocks.
Lyonchhen also said that private sector, particularly most manufacturing sector in the country are dependent on the incentives. “The moment incentives are withdrawn, they will blame the government,” he said adding that innovation in the private sector is lacking. “In essence, the profit they make is the incentives provided by the government.”
One of the priority of the government, currently is to bring about tax reform. Lyonchhen said that the new taxation has three components- direct, indirect and property taxes. After four round of discussions, the Prime Minister said that government is hoping to present the tax Bill in the upcoming session of the Parliament.
“There is a good component of narrowing the gap in the tax reforms,” he said. However, he said the details cannot be revealed since its under discussion and that it would be unethical to do so.
Meanwhile the GDP growth projections are on the positive side, which is attributed to commissioning of Mangdechhu Project.