Development, Economics and finance, Health | South Asia

19 October 2021

As Bhutan’s government kicked into gear to focus on fighting COVID-19, other important priorities, like poverty reduction and the worrying state of some of its most important investments, went overlooked, Lhawang Ugyel writes.

Bhutan has made international headlines for its successful management of the COVID-19 pandemic and, in particular, its vaccination rollout. As of 7 October 2021, Bhutan has had a total of 2,617 cases and three deaths from the virus, with more than 64 per cent of its total population now fully vaccinated.

These statistics are particularly impressive given that Bhutan shares its borders with India, one of the pandemic’s worst-affected countries, and China, the country where the first case of COVID-19 was detected.

Bhutan’s successful management of the COVID-19 pandemic can be partly attributed to its small size, both in terms of its land area and population – only 735,000 people live in the country.

The other more compelling reason is Bhutan’s leadership. Its king, as head of state, and the prime minister and health minister led a bipartisan and collaborative effort against the virus that enabled the implementation of targeted policies that have minimised the health and socio-economic impacts of the COVID-19 pandemic.

In implementing COVID-19 interventions, the government was to protect the limited health workforce available in the country.

Bhutan also initiated a series of social and economic policy interventions, for example, the deferment of loan repayments and waivers of interest payment for loans, and the provision of supplementary income for some of those who were adversely affected by the COVID-19 pandemic.

Despite this success in managing COVID-19, Bhutan still faces many other problems. The fact remains that Bhutan is still a developing country, with a gross national per capita income of just $3,140 in 2019.

Bhutan faces a number of the same socio-economic challenges it did before the pandemic, and many of these are now exacerbated by COVID-19, its successful health strategy aside.

More on this: Bhutan’s pursuit of happiness in the pandemic era

Global economic growth is projected to improve in the near future, but there is likely to be a significant divide in recovery paths between developed and developing countries.

Cumulative per capita income losses over the period of 2020 to 2022 are projected to be equivalent to 20 per cent of 2019 levels in developing countries, while in developed countries these losses are expected to be smaller, at 11 per cent.

According to the World Bank, Bhutan’s economy contracted by 6.7 per cent in 2020, largely due to the COVID-19 pandemic. It is likely that it will continue to take a hit into 2021 due to decrease in revenues, particularly from tourism.

Almost 32 per cent of employees in the tourism sector lost their jobs in 2020, and in a worst-case scenario, projected by the United Nations office in Bhutan, the unemployment rate in the country could go as high as 14.4 per cent. The best-case scenario was an unemployment rate of 8.3 per cent. In 2019, this rate was only 2.7 per cent.

This all comes at a crucial time for Bhutan, which has been in the process of graduating to a middle-income category, something it aims to achieve in 2023.

It may be lucky in one sense – whether it can do this largely hinges on whether its investments in hydropower will pay-off, a sector that hasn’t been as vulnerable to pandemic impacts as some others. But, importantly, the government’s focus has been on managing the pandemic rather than other issues.

More on this: Measuring income inequality in Bhutan

In an update provided through the Ministry of Finance’s September 2020 Public Debt Situation Report, hydropower debt accounted for 75.1 per cent of the country’s total external debt. The whole transport sector, by contrast, accounts for 1.7 per cent.

While the document describes Bhutan’s investments in hydropower projects as ‘commercially viable with significant export potential’, due to lockdowns, the closing of international borders, and previous delays, some of these projects have stalled, by as much as five years, with escalating costs.

Their success is economically crucial, albeit with social and environmental costs. The Druk Nyamrup Tshogpa government came into power in October 2018 on a platform of ‘narrowing the gap’ in incomes across Bhutanese society.

One of their pledges is to enhance hydropower development as a major source of national income. Some of their other pledges are aimed at reducing income inequality by eradicating poverty, improving jobs and livelihoods, and the introduction of a range of welfare schemes. As the government’s focus and funds have been diverted to address problems directly related to COVID-19, other important national priorities, like these goals, the viability of its hydropower investments, and their social and economic impacts are being overlooked.

Distracted by a pandemic now largely under control in Bhutan, the government has been unable to capitalise on some of its previous policies. Investing in the areas Bhutan is known for, such as environmental conservation and the preservation of its rich tradition and heritage, may come with opportunity costs, but the government can’t let them go ignored.

In the past, policies that focused on the preservation of Bhutan’s rich Mahayana Buddhist and endogenous traditions and cultures helped in enhancing the country’s global image. In turn, this helped promote tourism, an important sector for Bhutan’s economy that benefits a wide range of stakeholders. With the pandemic coming under control, the government must look to being able to replicate these kinds of successes in the coming years.

Ultimately, with low COVID-19 case numbers and high vaccination levels, the government needs to turn its attention to other important national priorities if it hopes to keep its 2018 election promises.

This article is part of Policy Forum’s In Focus: Developing Asia section, which brings you analysis from experts on the policy challenges facing its least developed members.

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