Wednesday, November 12, 2014

GDP at 2.05 percent is alarming



From Google
Bhutan’s economic growth rate fell to one of the lowest at a meager 2.05 percent in 2013. 

Questions immediately arise as to what does this imply? And how does it reflect on the country as far as its economy is concerned.

GDP is an important measure of an economy. Higher growth rate is often associated with lesser unemployment, higher income and increase in aggregate production. While measuring GDP, economists either use the income or expenditure method which is basically how much income everyone earned during a particular period of time or what amount of money the country’s population spent during the same time, both methods would ultimately reach at a close figure.

Increase in the national income and unemployment is inversely related, meaning, when national income increases, unemployment would decrease, because institutions, businesses and organizations have enough money to expand and recruit more people.

Higher GDP growth rate also means an increase in the level of investment; therefore, an economy naturally sees rapid infrastructural development in the form of construction boom.

Given that Bhutan is still at a growing stage when it comes to its economy, a growth rate of 2 percent is alarming. 

It’s like stunting (from a young individual’s perspective.) Bhutan has so much room to grow and it means we have not been able to tap it. It is understandable when developed countries like the United States record a growth rate of 2 percent, because they have already reached a level of maturity that growth becomes difficult even when billions of extra dollars are pumped in. They have already grown so much. 

GDP is measured in such a way that if the economy earned Nu 100 this year, you must earn Nu 200 next year to record growth. If you earned Nu 100 this year and the same amount next year, there is no growth. So this means that it would become increasingly difficult for countries like the United States to earn double or triple of what they have earned last year.

The size of USA’s spending could be around USD 18 trillion (18 followed by 12 zeroes). Therefore, it is practically impossible for countries like the United States to add another 18 trillion next year and hence they register lesser economic growth.

In the previous years, Bhutan enjoyed one of the highest economic growth rates in the world. GDP at one point of time reached about 20 percent. 

So if Bhutan doesn't grow, it means the economy is experiencing a slump and we will most likely see an increase in unemployment rate.

However, an increase in growth rate in the previous years has also been associated with all kinds of problems like the rupee shortage. As national income increased, spending also increased. Since the manufacturing base is very small, most of the expenditure automatically got converted to Indian rupees, thus putting a lot of pressure on the Indian rupee and to reign in outflows, several restrictive measures were put in place.

This does not bode well to the citizens of the country. It appears that we cannot handle higher growth rate because then there will be more rupee outflows, at the same time a lesser GDP growth would also mean higher unemployment and  lower profits for companies, businesses and shops.

The effort than has to be made on the manufacturing sector, so that foreign imports are minimized.With a strong manufacturing base in place, Bhutan can afford to grow much more higher than just 2 percent because now no matter how much investment level increase, we have the manufacturing base which can absorb it. 





2 comments:

  1. this is a worrying situation and baffling too to see our growth slump to one of the lowest from one of the highest in just over an year. Written well that even an ordinary reader can understand.

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    Replies
    1. Thanks Gyembo, it is indeed very much worrying, unless good and proper incentives are provided to encourage growth in our manufacturing sector, Bhutan cannot handle higher economic growth

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