Report of Monday Morning Webinar on “Impact of the COVID-19 Pandemic on Bhutan’s Economy”

Dr. Opangmeren Jamir, Research Analyst, East-Asia Centre, Manohar Parrikar Institute of Defence Studies and Analysis, spoke on the “Impact of the COVID-19 Pandemic on Bhutan’s Economy” at the Monday Morning Webinar held on 7 March 2022. The webinar was chaired by Dr. Uttam Kumar Sinha, Coordinator, Non-Traditional Security Centre. The Deputy Director General, Maj. Gen. (Dr.) Bipin Bakshi (Retd.) and other scholars of the Institute participated in the webinar.       

Executive Summary

The pandemic has brought many challenges in the world, especially for developing nations like Bhutan. Some challenges that emanate from the pandemic are in social, educational and healthcare sectors. Apart from these issues, the efforts Bhutan took to contain the pandemic are very satisfactory. The healthcare sector did well by vaccinating 65 per cent of Bhutan’s population. However, Bhutan has gone through an economic crunch which affected its other sectors.

Detailed Report

Dr. Uttam Kumar Sinha, the moderator, made opening remarks on the topic and introduced the audience to the topic “Impact of the COVID-19 Pandemic on Bhutan’s Economy”. He mentioned that Bhutan is one of the few countries that managed the pandemic well. He also focused on the social, economic, education, and especially the healthcare system that Bhutan managed and how they vaccinated its population. Despite all this management, the economy was hit by the pandemic and major sectors were declining.

Dr. Opangmeren Jamir explained the topic in three parts. The first part focused on Bhutan’s economy before the COVID-19 pandemic and during the pandemic. The second part emphasised the steps undertaken by the Bhutanese government to sustain the economy during the pandemic, via policy measures, i.e., Mining Bill 2020 and the commercialisation of forests.  The last part of the presentation revolved around India-Bhutan cooperation with a special focus on hydropower projects.

The speaker highlighted that Bhutan is following the principle strategy of Gross National Happiness (GNH) to measure the well-being and collective happiness of its population. The strategy has helped to achieve many sustainable development goals. Once the pandemic set in, the economy of Bhutan was on the brink. According to the National Income Statistics 2021, the economic growth of Bhutan in 2020 was 10 per cent. Except for sectors like agriculture and electricity, sectors like mining, communication, tourism, construction, and transportation made significant contributions to the economy. The tourism sector had boomed from 2012 to 2019 which became the backbone of Bhutan’s economy. But in 2020, the tourist arrivals plummeted to 29,000 as compared to 315,599 in 2019. Data shows that in 2019-2020 there was a decline in tourists by 91 per cent and this negatively impacted the economy with a 92 per cent decrease in GDP as compared to the previous year. Additionally, the fiscal deficit of Bhutan in 2019-2020 was Nu 3.385 bn and reached Nu 11.139 bn in the financial year 2020-2021.

Despite all these issues, Bhutan became one of the most successful countries in dealing with the pandemic. According to the WHO report (2022), till 6 March 2022, the total number of Covid-19 confirmed cases in Bhutan were 13,846 with only 6 deaths and 90 per cent of the population was fully vaccinated. To mitigate the impact of the pandemic, the Bhutanese Government launched the social welfare scheme called National Resilience Fund to help sectors like tourism and agriculture.    

As per the Bhutanese constitution, Article 14(6) says “the government shall ensure that the cost of recurrent expenditure is met from internal resources of the country”.  The government attempted to generate revenue by exploring domestic resources via bringing mining bills and commercialisation of forests. As compared to the tourism and hydropower sector which contributed to strengthening Bhutan’s economy, mining was not much explored in earlier times. However, the Mining Bill was defeated in the National Assembly and National Council. The prime reason for the failure was the conflict of interests between the private and government sector. Members of the National Assembly were in favour of nationalisation of coal and other strategic mines while putting non-strategic mines under the private sector which was a violation of the Constitution of Bhutan. On the other hand, members of the National Council were in favour of the nationalisation of all mines that was also mandated by Article 1(12) of its Constitution, according to which all-natural resources should be under state rule.

The speaker highlighted the commercialisation of forests, another measure to generate revenue. However, there is high risk involved as deforestation leads to many climate issues. As Bhutan is the only carbon negative country, there is an onus on the decision-makers to balance economic development with ecological protection. Article 5(3) of Bhutan mandates the government shall ensure that “in order to conserve the country’s natural resources and to prevent degradation of the ecosystem, a minimum of 60 per cent of Bhutan’s total land shall be maintained under forest cover for all time.”   

The last section of the presentation focused on India-Bhutan cooperation on hydropower projects. India has been a consistent partner in providing development assistance to Bhutan. In the budget session of India for FY 2021-2022, Finance Minister Nirmala Sitharaman announced a development assistance of 7,100 crore rupees to countries in India’s neighbourhood, in which the share of Bhutan was maximum with 3,004 crore rupees.

One of the special features of India-Bhutan relations is the hydropower project, which dates back to 23 March 1974, the Chukha hydropower project. Later, agreements on the construction of two more power projects were concluded; the 60 MW Kurichhu and the 1020 MW Tala hydropower project. The 2006 agreement added another 5000 MW of electricity export from Bhutan to India. Later the 1200 MW Punatsangchu was unveiled.  

Hydropower export is a major component of Bhutan’s economy that contributed over 40 per cent to its national revenue and 25 per cent to its GDP. These projects have been identified as a win-win. Despite India’s economic development assistance, there is a negative perception in Bhutan about India, more during the economic shutdown. In the past several years, the performance of Bhutan’s hydropower projects has declined. The total debt (Domestic and External) in 2018-19 was Nu 184.174 including the share for hydropower debt of Nu 142.036 bn. The total debt increased in 2020-21 to Nu 234.389 with hydropower debt climbing to Nu 162.359 bn.

India’s actions were blamed for the hydropower debt situation in Bhutan as India reversed the financial model from 60:40 (60 per cent grants and 40 per cent loans) to a 30:70 model (30 per cent grants and 70 per cent commercial loans). Another major reason was fixing low electricity tariffs for the energy imported from Bhutan. The Bhutanese officials complained that India is getting cheaper electricity from Bhutan as compared to domestic market rates in India. Escalation of costs in the construction of hydropower projects is a major reason for increasing debt. Further, Bhutanese officials failed to undertake rigorous environmental impact assessments. In addition, the hydropower projects also failed to generate jobs for the local population as contracts are mostly held by the Indian construction companies.  

Comments and Questions

Following this extensive presentation, Dr. Uttam Kumar Sinha first called upon Deputy Director General, Maj. Gen. (Dr.) Bipin Bakshi (Retd.) for his comments. Dr. Sinha later opened the floor to the participants.

Maj. Gen. (Dr.) Bipin Bakshi threw light on bilateral cooperation in the field of economy and security. He discussed the role of the Indian Army training the Bhutanese Army and the development of roads by the Border Roads Organisation (BRO). He also talked about Operation All Clear (2003) where 40 ULFA camps were uprooted in the region by the Indian Army.

Dr. Uttam K. Sinha commenting on the presentation highlighted Bhutan’s format of development and how social, cultural, and environmental costs are equally important. He also talked about the form of government in Bhutan since 2018 and its objectives regarding the demands of Bhutanese societies that are also reflected in its economic plans and its development goals.

Ms. Mayuri Bannerji asked about the sectors other than tourism that were hit by the pandemic and what foreign remittances contributed to Bhutan’s economy and how it impacted Bhutan’s economy.    

Mr. Prashant Singh asked about the interests of international, governmental, and non-governmental donors in Bhutan and any other demands within Bhutan to open up for foreign economic cooperation other than that with India, particularly China.   

Dr. Opangmeren Jamir gave extensive and insightful remarks and a detailed discussion was held on all questions and comments by participants. 

Report prepared by Mr. Mukesh Kumar, Intern, Centre for Defence Economics and Industry, Manohar Parrikar Institute of Defence Studies and Analysis (MP-IDSA), New Delhi