Economic Stimulus Plan (2013)

The Economic Stimulus Plan (ESP) was a Nu 5 billion fiscal package adopted by the Government of Bhutan in 2013 to counter the slowdown that followed the 2011–2012 rupee crisis. The crisis had produced an acute shortage of Indian rupees, prompting the Royal Monetary Authority to ration rupees and commercial banks to freeze new lending; the ESP was designed to restore liquidity to the banking system and revive credit and growth over the medium term.^[1]

The plan was prepared outside the outlay of the Eleventh Five-Year Plan and was taken forward by the People's Democratic Party government that took office in 2013 after defeating the incumbent Druk Phuensum Tshogpa, for whom the rupee shortage had been a damaging election issue.^[2]

Design and allocation

Of the Nu 5 billion total, around Nu 4 billion was directed into the banking system to enable financial institutions to lend again. This component was structured as a mix of equity infusion, long-term deposits and bonds, a revolving fund for targeted lending, and a fund for microfinance institutions intended to widen financial inclusion in rural areas.^[3]

The remaining Nu 1 billion funded targeted subsidies and government pledges, including subsidised loan schemes, support for students pursuing higher studies, transport and air-travel discounts for students, and provision toward free electricity for rural households. The plan was drawn up by a national-level task force and was discussed in the first round of Bhutan–India Development Cooperation talks held in August 2013, with an expectation that the Government of India would finance much of the package through a rupee grant over and above its assistance to the Eleventh Five-Year Plan.^[3]

Implementation and reception

The World Bank, in its April 2014 Bhutan Development Update, noted the ESP among the measures taken to ease the credit crunch and support recovery after the rupee shortage.^[4] Implementation drew criticism from parts of the private sector: the Bhutan Chamber of Commerce and Industry and others reported that procedural requirements and assessment criteria made it difficult for many businesses to access the lending and subsidy windows, slowing the package's intended effect.^[5]

The ESP is generally regarded as the principal short-term fiscal response to the rupee crisis, complementing the monetary and import-control measures introduced by the central bank and government. It illustrated both the close dependence of Bhutanese macroeconomic policy on Indian financing and the practical difficulty of channelling a liquidity injection through a small banking system into productive private lending.

References

1. Draft Economic Stimulus Plan calls for a Nu 5 bn injection into the Economy — The Bhutanese
2. PDP accelerates for economic stimulus plan — Bhutan News Network
3. Nu 5 bn Economic Stimulus Plan submitted by task force discussed in plan talks — The Bhutanese
4. Bhutan Development Update, April 2014 — The World Bank
5. Private sector faces procedural hurdles to access ESP: BCCI — Kuensel