IMF Releases 2007 Article IV Consultation Report on Bhutan
On 12th of October 2007, the International Monetary Fund’s (IMF) public affairs and media relations department has released its 2007 Article IV consultation reports on Bhutan through its Public Information Notice (PIN) No. 07/129. However, the detailed report of the Article IV, 2007 consultation, which contains significant economic indicators of Bhutan’s economy, was made available to public by IMF yesterday on 16th of October 2007. It is important to note that, Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year and a staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities. And, according to the media relations department of IMF, on 5th of October 2007, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Bhutan.
The 2007 Article IV consultation discussions with Bhutan had been held in Thimphu from July 19−31, 2007, in which IMF staff members – Mr. Kalra (Head), Ms. Oura, and Ms. Topalova, Mr. Mohanty, Senior Advisor to Executive Director, attended meetings and met with the Bhutanese Prime Minister Wangchuk, Finance Minister Norbu, Royal Monetary Authority Managing Director Tenzin together with other senior officials, and private sector and donor representatives to finalize the report.
Most importantly, the report suggests that, under the vibrant leadership of former King of Bhutan – Jigme Singye Wangchuk and under the present King Jigme Khesar Namgyal Wangchuk, Bhutan has achieved significant real GDP growth averaging 7 (Seven) percent during the year 1997-98 and in the year 2006-07, raising per capita GDP to around US$1,400, which also corroborates that, Bhutan is truly working to achieve Gross National Happiness in real economic basis. It also indicates that, Social indicators have also registered an appreciable improvement in the Kingdom of Druk Yul and Bhutan appears to be on track to meet several of its Millennium Development Goals of the United Nations due to the political stability and prudent economic management of serene Himalayan Kingdom.
While assessing, economic developments of the year 2005-06 and 2006-07, the report recognized the contributions of India-Bhutanese joint venture – 1020 MW Tala Hydropower project and concluded that, Real GDP growth is estimated to have almost doubled from 9 percent in 2005/06 to 17 percent in 2006/07, with much of Tala coming on stream.
However, the IMF report also suggests that, in the year 2006-07, aid support from India fell, public infrastructure spending saw rising trend and interest rate spreads with India widened, causing area of concern for the Bhutanese economy. Although, it also acknowledges that, construction of joint India-Bhutan- hydropower stations Punatsangchu I and Dagachu will positively shape the economic growth in the Tenth Five-Year Plan (2008-09−2012-13) period, which would facilitate to maintain the projected GDP growth of average ratio of seven percent, as electricity exports to India from current and prospective projects would provide a fairly stable source of development to the economy.
The report says that, Bhutan’s current debt dynamics are sustainable, subject to a moderate risk of distress and Macroeconomic outcomes have remained favorable in the concerned assessment periods.
Area of Concern:
Although, the IMF report indicates certain area of concerns that, Bhutan’s RMA (the Royal Monetary Authority) needs to remain watchful of excess liquidity, credit growth and financial sector soundness and suggests that, important measures could be taken to mop up excess liquidity and curb private sector credit growth to prevent future economic crisis. And it recognizes that, to eradicate unemployment, government needs to aligning the education system to market needs, further streamlining the regulatory regime, liberalizing the trade regime, implementing financial sector reforms and investing in infrastructure to lower non-labor costs to generate employments. However, it acknowledges that government is working hard to fulfill suggested measures.
However despite significant economic growth, the IMF country report on Bhutan recognizes that, one of the major problem area of Bhutan’s leadership is to bridge the gap between rich and poor as Royal Government of Bhutan’s, 2004 Poverty Analysis Report, itself estimated, that, 32 percent of the population are living under poverty. It is important to note that, national poverty line in Bhutan is of Nu. 740 per month or US$17 and Poverty incidence is more severe in rural areas consisting of 38 percent and in the less developed Eastern region consisting of 50 percent.
However report acknowledges that, constraints of Bhutan’s landlocked geographical location, small size, and limited potential for diversification of production creates challenging environment to fight poverty.
Direction of Trade:
In the area of trade, report suggests on the basis of the data provided by the Royal Government of Bhutan, that, between the years 2001-2006, India had continued to maintain strong friendship with Bhutan by attracting increasing trend in export from the Himalayan Kingdom and from 100 million US dollars in the year 2001, achieved constant increase except the year 2003, as – 106 millions US dollars of export in 2002, 71 millions US dollars in 2003, 171 millions US dollars in 2004, 226 millions US dollars in 2005 and 320 millions dollars in the year 2006. Whereas import from India to Bhutan consisted of – 148 millions US dollars in the year 2001, 156 millions US dollars in 2002, 220 millions US dollars in 2003, 225 millions US dollars in 2004, 290 millions US dollars in 2005 and 288 millions US dollars in the year 2006.
The new destination which found place in Bhutan’s import’s list is Singapore after India in the year 2006, which has replaced Japan’s lead in the area of imports in the year 2005. The area of concern for India is of rising trend of China’s economic inroads in Bhutan’s economy, which has got fourth position in imports together with Thailand. However, presently the volume of Chinese exports and imports are insignificant compared with Indian economic partnership with Bhutan. Whereas, Bangladesh occupies second favoured destination for exports from Bhutan after India consisting of ten millions US dollars in the year 2006.
In conclusion, the report recognizes Hydropower in the structural sector as an engine of economic growth and appreciates Bhutan government’s focus in the areas of tourism sector as a high quality destination in Asia. It is important to note that, in recent years, Bhutan has attracted significant Foreign Direct Investments in the tourism sector and the Royal Himalayan Kingdom plans to increase annual tourist arrivals from around 13,000 in the year 2005 to about 30,000 by the end of the Tenth Plan period (2008/09−2012/13).
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