Bhutan unveils ambitious Rs 15-bn economic stimulus plan with India’s support

Bhutan Prime Minister Tshering Tobgay has announced an ambitious economic stimulus plan to pull his country out of the economic doldrums. The plan will be implemented with support from India. ETV Bharat’s Aroonim Bhuyan explains the economic problems the Himalayan kingdom is faced with and what the plan entails.

New Delhi: To bring his country out of the economic morass that it is finding itself in, Bhutan Prime Minister Tshering Tobgay has announced an ambitious Rs 15-billion economic stimulus plan with support from India. Making this announcement at a meet-the-press session in Thimphu on Thursday, Tobgay said that a specialised task force has been established to craft a comprehensive strategy and supervise the implementation of the plan, Bhutan’s national newspaper Kuensel reported.

The Task Force has already outlined the mobilisation and allocation of the funds, with further discussion slated for a forthcoming cabinet meeting, the report stated citing Tobgay. Tobgay said that the acquisition of these funds will be facilitated through discussions with the Government of India and added that talks between the governments have already commenced. Final negotiations are anticipated during a meeting between Tobgay and Prime Minister Narendra Modi during the former’s upcoming visit to India.

“I have received an invitation from the Indian Prime Minister to visit India; I will be meeting soon,” Tobgay, who was elected as the Prime Minister for the second time after the National Assembly elections held in January this year, was quoted as saying. “We anticipate good support from India, given our strong relations.”

He also said that during the meeting, deliberations will encompass the modalities of fund disbursement. India has been extending economic assistance to Bhutan’s socio-economic development since the early 1960s when Bhutan launched its Five-Year Plans. India continues to be the principal development partner of Bhutan.

For the 12th Five-Year Plan, India’s contribution of Rs 4,500 crore constitutes 73 per cent of Bhutan’s total external grant component. The key areas of focus of the government of India’s assistance include agriculture and irrigation development, information and communication technology (ICT), health, industrial development, road transport, energy, civil aviation, urban development, human resource development, capacity building, scholarship, education and culture.

At present, over 82 large and intermediate projects (projects under Project Tied Assistance) and 524 small development projects and high-impact community development projects (HICDPs) are at various stages of implementation in Bhutan. The Fourth India-Bhutan Development Cooperation Talks under the 12th Five-Year Plan were held in January 2023 during the visit of Foreign Secretary Vinay Kwatra to Bhutan.

Ahead of the National Assembly elections in the Himalayan kingdom, Tobgay’s People’s Democratic Party (PDP), in its manifesto titled ‘Contract with Bhutan’, promised to pull Bhutan out from the economic doldrums. “Our nation’s economy is teetering on the brink of collapse,” Tobgay stated in a message to the people in the manifesto. “With an average growth rate of just 1.7 per cent in the past five years, our economy is at its worst in our recent history. The private sector, our main driver of growth, has become stagnant, with many businesses either closed or operating at reduced capacity. Youth unemployment has hit a record high of 28.6 per cent.”

He stated that Bhutan’s public debt is at its highest, particularly non-hydro debt at a whopping Nu 108 billion (Rs 108 billion). Foreign currency reserves have depleted to a level that threatens to breach the constitutional requirement. Fiscal deficits have widened while the national revenue stream has dwindled.

“A total of 80,614 Bhutanese people live in poverty in 2022,” Tobgay stated. “That is, almost one in eight Bhutanese is struggling to meet their basic needs for food and other basic necessities. Development in our rural areas has nearly come to a standstill. To make matters worse, in recent years, an unprecedented number of Bhutanese, including professionals and skilled individuals, have been leaving the country in search of better economic opportunities abroad.”

He stated that this has put immense pressure on public service delivery, affecting the country’s hospitals, schools, and public institutions. These unprecedented economic challenges and mass exodus of Bhutanese, he stated, are happening at a time when Bhutan is experiencing a steep decline in fertility rate, which currently stands at 1.8 per cent, below the replacement rate of 2.1.

“If we are unable to reverse these trends, the very viability of our nation will be in jeopardy,” Tobgay cautioned the people. “If we do not course correct immediately, the very survival and sovereignty of our beloved nation will be at stake.” To rebuild and revitalise the economy and transform Bhutan into a developed nation, the PDP pledged to achieve some key economic goals.

For one, it promised to increase the GDP from $2.5 billion to an ambitious $5 billion (which includes investments in hydropower in the next five years). It also pledged to increase GDP per capita from $3,400 to $12,000 in the next 10 years. The manifesto also pledged to create full employment (97.5 per cent) in the next five years, with annualised creation of 10,000 jobs, including 2,000 jobs, in the digital sector.

The party also promised to boost private sector investment from 40 per cent to a robust 60 per cent in the next five years. Another target is to increase the contribution of the manufacturing sector to GDP from six per cent to a substantial 30 per cent in the next five years. The manifesto promised to increase the number of tourist arrivals to an annual average of 3,00,000 tourists, with 50 per cent originating from third countries, thereby revitalising the tourism industry.

The party also pledged to increase foreign direct investment (FDI) from Nu 43 billion to Nu 500 billion in the next five years. According to the Kuensel report, initially, the government’s focus in the economic stimulus plan would be on infusing liquidity into banks enabling them to extend loans and to maintain foreign reserves. Funds will also be channelled into various initiatives such as the De-Suung Skilling Programme to foster the growth and expansion of startups and cottage and small industries.

“The funds are expected to bolster support for export-oriented businesses, import-substitution enterprises, women entrepreneurs, youth entrepreneurs, farmers, as well as industries like film, entertainment, construction, IT, and tourism,” the report stated. According to Prime Minister Tobgay, in terms of financial support, some loans would be interest-free while others would carry concessional rates, “making them more accessible to the targeted beneficiaries”.