IDR Blog
Bhutan: Managing Wuhan Virus and its Adverse Impact
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For smaller countries, while managing the spread of Wuhan Virus (Covid 19) could be efficiently done, its impact on the economy is a major challenge. Bhutan is no exception. But with a disciplined population, good leadership and a benign King, the country has managed successfully to contain the Virus and manage the economy to the extent possible.
Bhutan closed its international border with India since March 23rd this year. With a porous southern border and the adjoining States in India like West Bengal and Assam having a hig incidence of Virus Infections, the country had to take additional measures in having to demarcate a High Risk Zone in the Southern Plains to prevent its spread.
A rough line connecting whole of Samste, Lower portion of Chuka, Lower portions of Dagana, whole of Sarpang, lower Permagstul and whole of Samdrong Jonkhar was declared a “High Risk Zone” and a mandatory one week’s quarantine was enforced strictly on those visiting these areas. Even the King who visited the southern districts in September had to observe a week’s quarantine on his return to Thimpu.
One major visible casualty was the closure of the Centenary Farmer’s Market in Thimpu which brought huge crowds. Closure of the market has left many retail sellers out of jobs and the opposition has appealed to the Government to revive the market with more regulations or smaller markets dispersed within the City.
Due to the pandemic, according to some, the Country’s ability to have self sufficiency in Food and full employment have become distant dreams.
While Hydro power has maintained its output, other sectors like tourism, self operated businesses in tourism have had no earnings. Some Bhutanese have returned home because of loss of employment but it has not reached any crisis proportions. Another sector that has been badly affected is in the Education of the Children.
The Government has also taken a “Revenue Hit.” Unemployment has jumped from 2.7 percent in 2019 to 8.3 percent in 2020 so far due to the pandemic. There has been perceptible food inflation too,
The Government had put in place “kiddu Relief” for those who have lost their earnings and it is said that Over Nu 1.2 Billion have been granted a kiddu relief to 33,000 beneficiaries including 14000 Children.
Trade deficit had also declined in the first half of 2020 by 32 percent compared to the same period in the previous year.
The lock down has affected small businesses and daily wage earners in a big way.
The Government had admitted that its plans to graduate the country from the position of the LDC by 2023 had to put in the “back burner” due to the economic disruption caused by Wuhan Virus. This was supposed to coincide with the completion of the present Regime led by Dr. Lotay Tshering but this is not going to happen.
The Prime Minister observed that everything has changed since the unleashing of the Virus. The Government’s focus has shifted to saving lives and livelihood posed by the Pandemic.
A large number of foreign Labour working mainly in Hydro electric Projects like Punatsangchuu II had left and many have not returned. Even the turnover of workers after a stipulated period of time could not be observed. To continue with the construction work without foreign workers became the greatest challenge for the Administration. Luckily a large number of local Bhutanese have come forward to join the work force and this appears to be major change in post pandemic period.
The pandemic has also given the Government an opportunity to improve economic growth and there are plans to
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- to Cut the Red tape which is a major problem in many settled economies.
- to increase digitalization
- Reduce the number of foreigners working and replacement with local workers as mentioned earlier including reducing the turn around time.
- Remove hurdles in law in getting domestic and foreign companies in investing
- Licensing and Permit systems to be made easier
- Make policies to attract more FDIs and make them predictable
- Investment Caps in certain sectors to be removed
- Import substitutes mainly in agricultural production. This is doable.
- To Guarantee Collateral free Loans up to 30 million Nu for selected industries.
Not all these proposals are in place. But given the determination of the Government and proposed policies being doable, there is hope that the adverse impact of the Pandemic can be managed. It is expected that the economy will recover to 1.3 percent by June 2021.
Desperate situations require desperate remedies. It is in this context that the Ministry of Economic Affairs has made some bold recommendations in the hope that these will be followed as quickly as possible by the Government. The proposals are bold indeed when one considers the current economic situation in Bhutan these include
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- Allowing Bhutanese to invest abroad. For a small country such regulations in the past to prevent an outflow of money were indeed necessary then.
- Divesting 30 percent of the State Owned Enterprises to the Public.
- Setting up of an International Offshore Financial Centre as in Countries like Singapore. The Policy is to develop Bhutan as an “International Financial Hub.”
- Allowing the opening of Non Resident Bank Accounts
- Allow offshore Registration of Aircrafts.
- Allow commercial loans and Bank loans from Foreign Lenders.
- Tax Breaks for Export Industries, Other Tax Incentives, availability of convertible currency supply and predictable power tariff of competitive Industries.
These are bold suggestions indeed and the fact these have been officially aired gives the impression that the Government may be toying with these proposals. Even if half these suggestions are implements, it is certain that there would a paradigm change in the country’s economy.
It is interesting to note that Bhutan declined the offer made through IMF of multiple Financial Institutions like World Bank, ADB etc. to defer all international payments due to the Pandemic. Other countries like Pakistan which is almost bankrupt should learn a lesson from Bhutan. Bhutan did not want to spoil its “image” in the international arena!
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