Thursday, October 30, 2014

Is the economy slowing down or overheating?

The Bhutanese economy is experiencing an interesting paradox. Is the economy slowing down or is it overheating? I believe an economy can either slow down or overheat but not both. While it may seem unnatural, our economy shows both signs of slowing down and overheating.

Huge investments are being pumped into the hydropower sector, over Ngultrum 200 billion, which is twice the size of the country’s GDP. (Punatshangchu I alone is worth Nu 94B). Investment is integral to economic growth as it leads to more economic activity and hence higher growth rate. The huge investment is consequently leading to an increase in the supply of money and conventional economic laws dictate that an increase in the supply of money will push Inflation.

Inflation has been averaging 8 to ten percent which indicates a highly overheated economy.
On the other hand, however, despite a significant rise in investment level, growth rate has been recorded only at 4.6 percent, a decrease from an average 8 to ten percent from the previous years.


The economy recorded a slump but investment is increasing and inflation has been rising. So has the economy slowed down, or has it been overheating?

Wednesday, October 22, 2014

Small Things-Big Difference


Let us all focus on the small things because that’s where everything starts.
Our economy is still reeling under the pressure of a liquidity crisis, several solutions have been recommended; some are yet to show results while others have proven ineffective. But while we carry forth this task of reshaping our economy, we have always overlooked the small things that will have far reaching implications than formulating expensive plans, activities and policies that take time to materialize.
The government has often contemplated and even carried out some form of austerity measure, which I am totally against. Austerity measures always backfire; there are several examples throughout history that has showed to us that, austerity measures never work.

Take for example the Sovereign debt crisis in Europe, austerity measures carried out by the governments of European countries led to massive unemployment, riots, protests, and poverty.

In our case, however, there are many things that can be done without the need to go for an austerity package. Several small little things that can make big differences

Bhutan hosts on an average around four to five major archery tournaments a year. By the end of the match, the victors take home their prizes in the form of either cash, refrigerators, laptops or other electronics.

There is an irony to this. Archery is a traditional game, while the prizes offered to the players are modern electronics. And since this electronics has to be imported from elsewhere, probably India, an equal amount of pressure is built upon the rupee reserve of the government.

Prizes for the victors should be something that is indigenous, (or are they not attractive to our players?). Maybe a Bura gho, traditional handicrafts like Zashi phorp and dapas, you name it. These items are equally as valuable and even more precious than refrigerators and laptops.

In this way, it could reduce the pressure on Indian rupees, create employment in the local industries and promote their growth as well.

I am sure there are many such small things that can be done. These kind of approach would have many positive implications in the society besides reducing pressure on the Indian rupee.

This is just one small suggestion, but i am sure, there are many who would have several such ideas i would welcome your suggestions and ideas


 
 
 
 




Saturday, October 18, 2014

LET’s MAKE IT SIMPLE, Kuensel K2


Tourism's Role in the Economy

All eyes were on the shortage of rupee when the economy suffered a serious blow in 2012 from which it is still recovering. Hydropower, the country’s biggest revenue earner could not fetch enough rupee to finance people’s need. The shock left by the rupee liquidity crisis was felt throughout the country in almost all the sectors of the economy.

But in between all that, the tourism sector continued to grow unharmed, insulated from the economic pains brought about by the shortage of rupee. 

The sector remained insulated from the domestic shocks because it did not have to depend on the local market.


The tourism sector is only affected when there are global economic meltdowns as it depends on the international market.


So far we have been overlooking the benefits of tourism, but now we have realised that tourism contributes a significant chunk to the government revenue. Each year, it fetches over Nu 4B. But the benefit of tourism is not only the revenue it contributes; it has a wide-ranging trickle down effect.


It has helped in reducing unemployment as it employs over 40,000 people. It helps the local hotels, national airlines, vehicle hiring agencies, guides, transportation, shops, consulting firms and travel companies among others.


If the economy functioned like a network of electricity and we take the tourism plug out, many places will be left without light. Without tourism, there will be massive unemployment as there will be no need for travel companies, guides and vehicle hiring agencies.


Each tourist that visits the country is required to pay USD 250 a day as royalty and daily tariff. Last week, more than 5,000 dollar paying tourists visited the country to witness the Thimphu Tshechu.


Therefore these 5,000 tourists were contributing USD 1.2M a day (Nu 76M) to the economy besides creating employment for a large number of Bhutanese.Tourism is the single largest contributor of hard currency to the economy. Most of its earnings are in US dollar.


Therefore it is only in the best interest of the country to promote tourism. However, in doing so, the important thing is our culture and environment is not undermined. Many countries have had experiences of social dislocation and their culture and environment being ruined in pursuit of maximising the benefits from tourism.


Bhutan follows the high value-low impact tourism policy, which basically limits the number of tourists to a few high end by charging expensive rates and allowing them to put up in a minimum of three star hotel. This does not allow many tourists to come into the country, as many cannot afford the daily tariff of USD 250 a day.


The tourism council of Bhutan overlooks and monitors tourism related regulations in the country.

Contributed by Nidup Gyeltshen


Friday, October 3, 2014

Roads are the lifeline to an economy


As I drive around Thimphu city, my ageing Swift LXI, decrepit as it maybe, has to bear the brunt of a bumpy ride, spiraling across the several potholes that dot the roads across the city. Several craters and potholes have appeared across many sections and places.

Cars and trucks and vehicles of all sorts have to maneuver all the obstacles and the dangers our roads present and with it bring traffic bottlenecks and then road rage.

We are overlooking the importance of our roads and it is high time, we reset some of our priorities. A lot of time is being consumed driving around and getting to a destination. For businesses, time is money, it has always been.

We have seen how other countries have laid so much emphasis on roads and how they’ve developed in just few years. Transporting goods have become easier and a lot of time is saved as it is faster to deliver goods and commodities across the country.

Our roads however have been crying out for repairs for quite a long time. Besides potholes, there are rods jutting out from the manholes and driving over them would mean serious injury to your car.

It slows down transportation and hence vehicles land up consuming more fuel. Let’s say one vehicle consume an additional two liters of fuel a month because of our road conditions. There are more than 24,000 vehicles in the core Thimphu area according to some media reports.

So, an additional two liters of fuel a month would translate to an additional Nu 137 for each vehicle. All the vehicles combined, it would mean the economy would consume Nu 3.3M a month and in a year that translates to Nu 39M.

This money would be enough to repair the entire stretch of roads all across Thimphu.

This means an additional import of fuel worth Rs 39M and an equal pressure on the Indian rupee reserve. However, vehicles must be incurring additional fuel consumption more than two liters a month.


So why not we repair the roads and then save on the fuel imports?