DPT ECONOMIC ACTION PLAN (6th July, 2013) The DPT’s Economic Action Plan (EAP) is its blueprint to address the immediate problems of rupee shortage and access to credit and private sector development, and sector wise strategy and action plans to boost exports, reduce imports and create employment that it would like to implement in its 1st year of government. This is not a stimulus plan. Economic Stimulus plans are necessary to revive economies in recession and Bhutan is facing the reverse situation, where the economy has been growing at more than 8% per annum and currently running the risks of overheating. Furthermore, the 11th FYP after its endorsement by the New Government, in itself has huge stimulus components within the proposed Nu. 234 billion. This Economic Action Plan is to address the most immediate needs during the first 100 days and 1 year of government. The plan also keeps in mind the DPT pledge of providing employment to over 140,000 youth that will be out in the job market within the next 5 years. To this end, DPT government shall commit an amount of Nu.8.70 billion for the EAP that will also generate 7200 jobs and improve the “ease of doing business” in the country within the first year of office.DPT shall institute the Economic and Financial Advisory Body (EFAB) in the Prime Minister’s Office (PMO) on the first day of its office to implement this EAP. 1. The DPT manifesto has devoted its first chapter exclusively on the “Strengthening of the first pillar of GNH : Equitable and Sustainable Socio-Economic Development” (DPT Manifesto, pages 1-57). a. Diversifying and broadening economic base b. Facilitating the growth of the private sector c. Accessing investments and global markets d. Infrastructure for industrial growth e. Making the extractive industry responsible and profitable for society f. Making manufacturing a bigger and better proposition. g. Managing wealth with prudence h. Liberalizing the financial sector i. Bridging the income gap through tax measures and incentives for entrepreneurship. j. Ensuring fair compensation for land and access to common heritage k. Logistical support for trade and industry. The EAP would translate the above pledges and policy statements to actual ground action with specific measures and targets. 2. The Economic Action Plan (EAP) The EAP looks at 10 priority sectors starting with hydropower, tourism, construction, financial, ICT, education and agriculture etc. It also looks at some of the critical issues like rupee problem, access to credit and the ease of doing business in Bhutan with private sector as the key player in mind. All key measures like policy initiatives, budgetary support and interventions are linked to the following policy objectives: a) Youth Employment b) Import substitution c) Increasing manufacturing base d) Promotion of SMEs e) Promotion of local & GNH Values f) Promotion of Rural Prosperity g) Promotion of Private sector h) Women Empowerment i) Affordable housing And all other provisions that are in the manifesto that also address SMEs, simplification of taxation, and construction and tourism industry. 3. The Economic & Financial Advisory Body (EAFB) and the Implementation of the EAP. The government shall formulate the policy and modus operandi of the EAP in its first 30 days in the office through extensive public consultation and then to be finally submitted in the first parliament session. The cabinet shall delegate the responsibility to its Economic and Financial Advisory Body (EFAB) that directly reports to the Prime Minister. The EFAB shall have the following members: a) 3 representative from the private sector b) 2 eminent international experts c) 1 representative from the Ministry of Finance d) 1 representative from the Ministry of Economic Affairs e) 1 representative from the GNHC. f) 1 Economic/Financial Advisor from the PMO. The EFAB shall be instituted within the first week of the DPT government to be followed by their first meeting within the first month. 4. Focus Area and the Priority Sectors a. Rupee issue and the financial sector b. Hydropower sector c. Construction sector d. Manufacturing and SEZs e. Agribusiness f. Imports g. Tourism and Hotel h. ICT i. Film and Media j. Zorig and Handicrafts k. Education l. Ease of doing business Summary of initiatives and strategies for each of these areas and sectors are given below: a. Rupee issue and the financial sector The problem facing the Bhutanese economy is a structural problem rooted in its Balance of Payments and therefore corrections will take time and will require concerted efforts both from the monetary as well as the fiscal side. Towards this end, the DPT government will work with the RMA and arrange foreign currency reserves to allow minimum credit expansion in the financial sector of about Nu. 5 billion in the first year. The credit expansion will be targeted to productive sectors. Options that the government will explore include concessional financing from multi-lateral agencies and banks with 5 to 8 years of grace period, long-term currency swap arrangements with RBI, and setting up on an industrial bank. Strategies and plans to resolve the rupee issue are given in more detail in Annex – 2. “Nu. 5 billion credit for private sector in the first year” b. Hydropower sector DPT will promote greater participation of local Bhutanese firms in the development of power projects, and also encourage development of mini and small power projects by Bhutanese private sector. These will be achieved in consultation with the GoI and the Project Authorities and by making the necessary policy changes to support greater participation by Bhutanese private sector. DPT government will also bid out at least 10 MW of hydropower project to local private sector. The government will approve the Power Allocation Policy in its first 100 days of government and bring about much needed clarity and direction for industrial development in Bhutan. The government will also implement a Power Subsidy Policy to make power affordable to ordinary Bhutanese citizen. “Will make power affordable” c. Construction sector Construction sector is the biggest sector contributing to Bhutan’s GDP and DPT government plans to leverage on this sector to provide employment, increase revenues, improve productivity, reduce imported materials and labour, and enhance the overall productivity of the economy. The government will work towards mechanization of the construction industry by setting up equipment leasing facility at reasonable prices through CDCL. Promote use of local materials in construction by providing design support, equipment and technology, and capital required to set up factories that produce materials locally like Aerate Autoclaved Concrete Blocks. The government will also structure affordable housing projects and home ownership on various models including PPP model. “Nu. 1 billion support for improvement of the construction sector” d. Manufacturing and SEZs Government will fast track the development of SEZs and Industrial Estates, and provide financial and policy support to start at least 2 industrial estates in its first year of government. To enhance connectivity and lower transportation costs, it will work with the GoI to provide railway link to at least one SEZ/industrial estate. Put the power allocation policy in place to enable industries to be set up as and when the firm power becomes available. “Start development of at least 2 industrial estates in its first year of government” e. Agribusiness The government will incentivize commercial farming, encourage FDI in high value agribusiness like the hazel nut project, value add to agri exports, provide cold storage facilities, and provide financial support where feasible to local farmers. “Nu. 300 million in agriculture subsidies and incentive to be provided to farmers” f. Imports Lift ban on imports by putting in place appropriate fiscal policies to allow imports while reducing non-essential imports. g. Tourism and Hotel The government will improve international connectivity, open new sectors like Wellness and MICE tourism, start construction of 1000-seat convention center, and provide incentives to promote the tourism and hotel industry. “5000 new jobs in the hospitality sector and Nu. 360 million budgetary support in the first year.” h. ICT Continue to support the development of the ICT sector by improving international connectivity and reducing costs of operations for ICT based businesses. Introduce new technologies like 4G to grow data based services, and enhance public service delivery by bringing more Government to Business (G2B) services online, and introduce tablets in pilot schools to enhance learning experience and quality of education. “Use ICT to deliver more public services to businesses and citizens efficiently and quickly” i. Film and Media Support construction of at least 3 new theatres in major towns (without theatres), provide lease land for makeshift screening of local movies, give tax breaks on high-tech equipment required by the industry, and support export of products to third countries. j. Zorig and Handicrafts Provide fiscal support in the import of raw materials, HRD support, exemption of business tax for businesses with turnover of less than Nu. 1 million, and marketing support for export of goods. k. Education Promote establishment of private colleges in Bhutan and issue license to at least 3 private colleges. Encourage private participation and FDI in vocational training services. l. Ease of doing business Bhutan’s ranking in the ease of doing business has deteriorated further from 142 in 2011 to 148 in 2012. This is a cause for serious concern as this will impede the growth of the private sector and the inflow of the foreign direct investments (FDI). According to the survey, areas that need improvement are i) ease of getting electricity, ii) issue of licenses and iii) insolvency issues. DPT shall mandate the Economic & Financial Advisory Body and the Ministry of Economic Affairs to implement strategies with specific targets so that the ease of doing business in Bhutan is raised by at least 10 points. 5. The Impact The government would provide a budgetary support of about Nu.8.70 billion for the overall plan whichgenerate about 7200 jobs in the first year. However, the immediate and the major impact would be the ease of the access to rupee and the credit issues. Summary of the DPT’s Economic Action Plan (EAP). • Nu. 5 billion into RMA reserve to ease credits • Nu.8.70 billion in the first year • Nu. 300 million in Agriculture price support/incentive. • Nu. 1.00 billion of ED refund. • Nu. 700 million for mechanization of construction sector. • Explore currency swap with Reserve Bank of India (RBI) • Explore setting up of an infrastructure and industrial Bank to also handle External Commercial Borrowings (ECB). • Explore concessional funds with 5-8 years of grace periods. • 7200 jobs in the first year & 140,000 jobs in 5 years. • Export Credit Schemes • Tax Rebates for SMEs • Education Loan • Affordable Housing Scheme and Loans • Hydropower Ancillary services • Power Allocation Policy • Power Subsidy policy • ED refund policy • 5 Cold storage facilities in Dzongkhags • Land lease in the Dzongkhags for movie tents • Improve Ease of Doing Business in Bhutan Ranking by at least10 points. • Ensure visit of 200,000 tourists and create 40,000 jobs • Export of handicrafts, indigenous and herbal medicine promotion. • Autoclave bricks and indigenous construction materials • Incentives to Institutes who can guarantee job placements. • 1500 acres for industrial estates & SEZs • Railway Links to India • East – West National Highway • Issue of licenses to at least 3 private colleges • Lift of import bans with fiscal policies • FDI Bill • Public Service Delivery Bill • Tourism Bill • Education Bill • Essential Services Bill Annexure 2 - Solutions to the Rupee Problem Rupee problem is on everybody’s mind but the actual issue is the balance of payment (BoP) between Bhutan and India. We import more than what we export. So the long term solution is to address this shortfall in the BoP by increasing our hydropower, mining, and manufacturing exports and then adopting a proactive reserve and fund management for the short term. The long term solution is adequately addressed through the Strengthening of the first pillar of GNH : Equitable and Sustainable Socio-Economic Development (DPT Manifesto, pages 1-57). First of all we need to understand that the balance of payment (BoP), and thereby the rupee shortage is a short-term problem of having more money in our hands as a result of the rapid income growth of our people. The long-term rupee position is secure and fundamentally sound because of the hydropower earnings and other export-related economic activities that are growing rapidly. In the short-term, the following course of action will be undertaken: Short-term measures: 1. For now, the most effective short-term measure is a well-calibrated foreign currency reserve management involving the adjustments among various currencies without jeopardizing constitutional requirement of maintaining reserves adequate to cover a minimum of 12 months of essential imports. This is being done by the RMA on a continuous basis. 2. The other options are trying to get into a longer-term currency swap arrangement with RBI so as to bridge the gap till our additional electricity export earnings start flowing. 3. The Government could also borrow at concessional rates preferably from the World Bank, JICA and the ADB loans with long maturity periods. This will allow us to meet our short term INR requirement against our longer term INR earnings from the hydropower, tourism and the manufacturing sector. The repayment can be made by the time our hydropower revenue comes on line. 4. In the past, substantial amounts of domestic financing were used for large projects like Dungsum cement and Dagachhu power projects, which have implications on Rupee outflows. In order to avoid recourse to domestic credit, the Government has already initiated dialogue with both the Asian Development Bank and the Government of India to enable ADB to issue bonds in India for financing projects in Bhutan. This will be pursued further. Medium to Long Term: 5. On the fiscal front, we will immediately institute policies that will boost the exports in other sectors lead by the private business sector. a. Tax incentives will be provided for all kinds of production within Bhutan, especially by the SMEs and those that substitute imports from outside. b. Export credits, incentives and subsidies will be provided for the production of all export-earning products and services. c. Targeted subsidies and special credit schemes will be provided for business that employs a minimum number of Bhutanese to ensure youth employment and also meets the minimum export threshold. d. Fiscal measures will be undertaken on the import of luxury items and also calibration of calibrate measures to modify our avoidable consumptive behaviors. 6. The Government will continue to work with RMA to ensure that credit and lending continue so that the economic activities are not stifled. This could be done through prudent but practical lending policies by the financial institutions. Both the government and the central bank willensure that the credit flows to investments and NOT for CONSUMPTION. Long –term Prospect: 7. The long term solution is to continue to accelerate our hydropower development that will generate more than adequate Rupees by 2020. This will boost the industrial growth and the value-addition that can be done in Bhutan. 8. In addition, all earnings from the diversification and expansion of the other sectors like tourism, mining, education, and health will be able to contribute substantially to the export earnings. 9. Other solution also includes strengthening of institutional and governance structure of agencies overseeing the economic management of Bhutan. The following will be instituted: a) Institute an Economic and Financial Advisory Body (EFAB) that reports to the PMO as per our Manifesto; b) Clear and coherent mandates and approach to macro-economic policy and management; c) Ensure proper co-ordination amongst the various agencies like the MEA, MoF, RMA and the GNHC; d) Improve MIS and data bank including the calculation of the GDP figure that is fundamental to all policies that would be adopted in the future. e) Provide adequate statistical application tools that will allow conclusive quantitative analysis to guide policy and decision making; f) Set clear and measurable targets and accountability for the agencies; g) Institute formal technical groups with the required domain knowledge and experiences to review proposals submitted to the government.
Posted on: Sat, 06 Jul 2013 05:03:19 +0000
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