Bhutan

Launch of UNESCAP Asia Pacific Social Economic Survey Report

Launch of UNESCAP Asia Pacific Social Economic Survey Report

5 May 2011 - RMA Conference Hall

Thimphu

Aum Eden Dema, Distinguished Deputy Governors - Royal Monetary Authority  

Other Representatives from Ministries and essential sectors

UN Colleagues and Development Partners

Other Distinguished Participants,

Members of the Press

Ladies and Gentlemen,

The Asia Pacific (AP) developing economies have recovered well in 2010 from the global financial crisis of 2008/2009. The fiscal measures taken combined with strong exports have helped the AP region emerge as a growth pole and an important player for global recovery.  Not surprisingly, the fastest - and largest - growing economies in the region in 2011 are expected to remain China at 9.5% and India at 8.7 %.

According to ESCAP the projected growth for Bhutan in 2011 is 7.2%, ahead of Indonesia, which is listed third among the large and fast growing economies in the region. As we know, GDP growth in this country has been and is expected to continue to be fueled mainly by the construction of hydropower plants and sale of electricity.

However, as the recovery consolidates in 2011, the AP economies face fresh challenges, including: the return of rising food and fuel prices; slow growth in some of the advanced economies; reduced spending and increased taxes by governments in some of these countries; and risks posed by volatile flows of speculative capital. The combined rising food and energy prices are having severe effects on the poor and ESCAP estimates that up to 42 million additional people across Asia and the Pacific may remain in poverty in 2011 in addition to the 19 million already affected in 2010.  In many LDCs, this could mean a postponement of the achievement of the MDGs by as much as 5 years.

As elsewhere in the region Bhutan also suffers from inflation as food prices continue to rise rapidly. This is mostly attributed to the fact that inflation in this country is linked to inflation in India due to the fixed currency exchange rates between the two countries. (Inflation rose to 6.1 % in 2010 from 3 % in 2009 and is expected to rise further in 2011.) Bhutan has also seen a growth of imports higher than that of exports, which has led to a widening of trade and current account deficits in 2010. The sharp increase was reportedly due to import of machinery and other materials for the construction of the hydropower stations.

ESCAP's  Economic and Social Survey report also underlines the remaining vulnerabilities in AP economies derived from unemployment, particularly youth unemployment, as well as from the quality of jobs and the vulnerability of workers. In this region youth are 3.2 times more at risk of being unemployed and Bhutan is no exception. (12.9% youth unemployment in 2009 against 4% national unemployment reported the same year).

Further, the recent earthquake and Tsunami in Japan have reminded the region of its vulnerability to natural disasters. A reminder that was hardly needed in Bhutan in the face of recent fires and windstorms, in addition to the ever present threat of earthquakes and glacial lake outburst floods.  The impact of the recent disasters in Japan on the Japanese economy and the knock on effect in other countries of the region also needs to be taken into consideration.

Taking into account both opportunities and challenges in the AP region, ESCAP's  Economic and Social Survey of Asia and the Pacific 2011 report proposes a number of internationally and regionally-based policy options, many of which resonate well within the national context of Bhutan. 

The report recommends international cooperation through the UN and the G20 in curbing financial speculation for food commodities and to regulate the diversion of food to biofuels. It also addresses price volatility for food through the counter cyclical use of buffer stocks. The report highlights the use of social safety nets and protection measures to mitigate the impact of rising food and energy prices as well as unemployment on vulnerable sections of the population. Environmentally resilient agriculture is encouraged, while simultaneously increasing productivity and drawing on south-south cooperation for knowledge and technology transfers.

To make regional economies less dependent on demand in advanced economies that are recovering slowly, the report also recommends enhancing regional consumption by generating more household income.  While the issue of domestic demand and diversification of the economic base is very much on the agenda for Bhutan, how this can be translated meaningfully into the GNH context will no doubt merit further reflection.

In addition the report addresses the issues of infrastructural gaps, developing greener industries, expanding ICT development, harnessing the potential for intra-regional trade, and finally the importance of ensuring that LDCs in the region are not left behind and that growth in these countries is inclusive, with the intervention of the State, where needed.

In Bhutan, the new economic development strategy finalized in March 2010 aims to diversify the economy, generate employment opportunities, promote exports and entrepreneurship, and enhance economic self-reliance. It also emphasizes sustainable development so that economic growth is not achieved at the cost of environmental degradation.  This is coupled with continued high priority accorded to the provision of basic services such as health and education and the generation of employment opportunities, particularly for young men and women.   This being said, in the light of the challenges faced by the region as a whole as highlighted in the report, which also affect Bhutan, some specific "take aways" for Bhutan from ESCAP's policy recommendations could include the need for:

• Strong, sustained - and carbon neutral - growth momentum, to tackle the long-term challenge of widespread poverty. Over the past few years, Bhutan has vigorously implemented activities towards reducing poverty but more targeted interventions are needed to reduce geographical and access inequalities.
• Continued economic reforms to improve productivity, strengthen public institutions, improve economic governance, and build social safety nets to protect the more vulnerable segments of the population.

 Tashi Delek