New Delhi: As economies in South Asia seem to be fast entering a vulnerable state — especially with Sri Lanka going bankrupt and Bangladesh knocking on World Bank’s doors — Bhutan is taking several “steps” to build economic resilience, one of them being reopening the Himalayan Kingdom for full-fledged tourism, said Tandi Dorji, Foreign Minister of Bhutan.
In an exclusive interview to ThePrint, Dorji said, Bhutan’s economy, though “tiny” compared to other countries, was not spared the impact of Covid-19. Hence, since the onset of the pandemic in March 2020, Thimphu implemented strict border containment measures and safety protocols that resulted in key economic sectors such as tourism, construction, and manufacturing being “severely affected”.
“The tourism sector is the hardest hit, which gradually spilled over to its allied sectors such as transport, construction and manufacturing sectors.… Bhutan is taking all possible steps to build economic resilience,” said Dorji. “Given the possibility of a recession in the global economy, we need to prepare for the worst-case scenario. Declining foreign currency reserves, increasing public debt and inflation are major concerns for the government.”
The negative impact on the tourism sector, the mainstay of Bhutan’s economy, has also led to massive job losses.
The increasing number of Bhutanese returning from overseas, displacement of employees, and growing numbers of new entrants in the job market further aggravated the unemployment scenario in the country, he added.
Unemployment in Bhutan peaked at 5 per cent in 2020, while youth unemployment reached 22.6 per cent, he pointed out.
“Though our foreign currency reserves are declining, we are in a comfortable position at this stage as Bhutan has been able to maintain reserves as per the constitutional requirement to meet the cost of not less than one year’s essential import,” said Dorji.
He added that the country is also aggressively promoting the use of local products to reduce imports as much as possible.
According to Dorji, Thimphu is also concerned about the rapid appreciation of USD against the ngultrum (Bhutan’s currency) that has led to inflation and increase in the cost of debt servicing.
“The sustenance of the current economic situation would lead to macroeconomic instability which would result in the economy facing high inflation and frequent financial issues,” he said.
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Bhutan and India hydropower projects
Dorji said that while the country is staring at a difficult economic condition, it is getting support from India.
“The hydro power sector, the main source of revenue generation for the country, supported by the Government of India, provided the much-needed relief in offsetting the shortfall in the domestic revenue realisation,” he stressed.
However, he also spoke about the projects that are now stuck.
During a recent visit to India by Bhutan’s Minister of Economic Affairs Loknath Sharma last month, both sides discussed the state of hydropower cooperation between themselves and how they are being re-planned owing to market conditions and growing energy crisis.
“On the Kholongchhu joint venture company, both sides agreed to work towards the closure of the JV Company as the JV mode of implementation has not delivered what was expected,” Dorji said.
He added, “The meeting between the power secretaries of two countries is expected to be held in Bhutan soon to discuss a suitable implementation modality for Kholongchhu and to review the overall hydropower cooperation.”
During his visit to Bhutan in 2014, Prime Minister Narendra Modi laid the foundation stone of the 600 MW Kholongchhu hydroelectric project, a joint venture represented by SJVN Ltd from India and Druk Green Power Corporation from Bhutan. The Concession Agreement for the 600 MW Kholongchhu hydroelectric project was signed virtually on 29 June 2020.
“On the Punatsangchhu-I Hydroelectric Project (HEP), the Bhutanese government is currently awaiting the findings of the Indian government’s independent committee which is studying both the barrage and dam options,” he said.
Indo-Bhutan hydropower cooperation began in 1961 with the signing of the Jaldhaka agreement.
The sale of hydropower accounts for the largest share of Bhutan’s GDP. It is also the most important export item, contributing about 63 per cent of the country’s total exports.
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Relations with China, border talks
Last October, China and Bhutan signed an MoU to settle the longstanding border dispute between them based on a three-step roadmap, much to New Delhi’s concern.
Declining to comment on the state of the talks at present, Minister Dorji said that since the negotiations are ongoing, he won’t be able to give details on their progress, but said that both countries “enjoy warm and cordial relations” despite absence of diplomatic relations between them.
“Bhutan and China engage closely on issues of mutual interest and concern. The two countries have also cooperated well in its fight against Covid-19 pandemic. In a show of goodwill and friendship and to support Bhutan’s fight against Covid-19, the Chinese Government donated vaccines, PPE and other medical supplies,” Dorji said.
Bhutan and China have been discussing the issue of settling the 477-km border between themselves since 1984 with 24 rounds of boundary talks and 10 rounds of meeting at the expert group level.
The border talks between Beijing and Thimphu are a cause of concern for India due to Chinese claims over the Doklam region.
Bhutan, till now, has been able to keep the Chinese at bay and has done a balancing act between New Delhi and Beijing.
Last month, Indian Army chief Manoj Pande visited Bhutan and called on Bhutanese King Jigme Khesar Namgyel Wangchuck and discussed bilateral issues.
(Edited by Zinnia Ray Chaudhuri)
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