Why a strong economy matters

Source: bhutantimes.bt

By Passang Dorji

Sept 24, 2008-Thimphu: When Bhutan adopted Gross National Happiness as its development philosophy, it had thrown down the gauntlet at itself.


And today the challenge is staring straight and square at the country’s soul.

With the economy yet to gain strength and stabilize at a self-assuring digit, Bhutan’s immediate challenge, some economists say, is to remain unscathed by the inevitable forces of the global trade integration. 

But, to do so Bhutan must strengthen its economy – a Catch-22, for the time being. The test doesn’t end here, either. There is a weightier challenge, because Gross National Happiness demands more than a tangible economic development.

Dasho Karma Ura, an economist and National Council member, said GNH has been an inspiring philosophy in the country and abroad; and it is part of the solution, if not a paradigm shift, to the current economic system that may otherwise destroy itself.


“Building a strong GNH society requires a shared vision among government agencies and the public. To realize the vision, the main instrument at this moment is public expenditure decisions every year,” Dasho Karma Ura said.


One looming problem of the Bhutanese economy, he pointed out, is the balance of payment with India. It is in considerable deficit, both causing and resulting in excessive demand for Indian rupee, because out of 363 goods Bhutan buys as part of consumer basket, 75% are imported, almost all from India. The rupee is needed to finance imports from India for government and private projects, for remittances by Indian laborers and official debt repayment to India.


And although the Central Bank (Royal Monetary Authority) has taken monetary measures that can help to lower rupee deficits, the main solutions for macro-economic balance must be worked out through a more thoughtful size and direction of planned expenditure which is the main instrument of any mega-change in the country, said Dasho Karma Ura.


He added the GNH survey shows predictably that people rate the government performance on reduction of inequality and poverty, both related phenomena, at a lower level than its performance of delivery of services like education, water, health, and electricity.


On the other hand, the 8.5% economic growth, spurred mainly by hydropower and service sector, has not been able to benefit the larger Bhutanese, economists point out. They say 3.2% of productive Bhutanese people still remain unemployed. Add to this 23.2% living under poverty.


The tourism industry is urban-centric and has not benefitted the rural population much. Therefore, despite the high GDP, the trickle down effect has been minimal.


The Bhutan National Human Resource Development Report states Bhutan’s industrial sector is engaged in 95% non-manufacturing activities. This means Bhutan is emerging as an economy trading in goods produced by other countries implying that Bhutan’s domestic demand only causes income and employment generation in other countries.


Further, the manufacturing sector produces only semi-finished products without value addition just to benefit other countries which upon import of Bhutan‘s primary and semi-finished products produce high value added goods.


The major gray area of Bhutan’s economy is the widespread fronting which causes income transfer to foreign countries on a large scale, say analysts, agreeing that Bhutan’s economic development benefits her neighboring countries more.


“Bhutan needs a clear economic model with a proper choice of enterprises,” said a local consultant. “It needs to be export-oriented with diversified manufacturing base.” Although hugely an agrarian society, the agriculture sector’s share to GDP has been falling rapidly. This is partly because of the loss of arable land to urbanization and the financial institutions having stronger ties to the urban construction and transport sector than to the agriculture and rural sector.


Thus, rural communities will soon be unable to sustain themselves if the agriculture engine crashes around them, economists warn.

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