National Workshop on "Strengthening the Response to the Global Financial Crisis in Bhutan: The Role of Monetary, Fiscal and External Debt Policies"
Jointly organized by UNESCAP, UNDP and the Royal Monetary Authority of Bhutan
Bhutan is a landlocked country whose economy is based on agriculture, forestry, tourism and the sale of hydroelectric power to India. Although Bhutan 's economy is small, it has been growing very rapidly in recent years. This fast growth has been mainly due to the commissioning of a gigantic hydroelectricity project. But in line with the fast-growing economy, so is external debt rising fast. In the external sector, India is Bhutan 's important trading partner with hydropower as a dominant factor in export. Reflecting this, Bhutan 's currency (Ngultrum) is pegged to Indian Rupee. Under the fixed exchange rate system monetary policy should be well implemented to keep financial sector stability. Thus, these economic situations require effective implementation of monetary, fiscal and external debt policies, which would be a challenge to Bhutan in coping with the global crisis.
The purpose of the national workshop is threefold. First, it aims at building capacity of high-level officials in Bhutan to implement monetary, fiscal and external debt policies to tackle the global crisis. Monetary policy should aim at economic growth with low inflation and stable financial markets under exchange rate peg to Indian Rupee. A critical constraint to the implementation of fiscal policy is the lack of fiscal space. It is thus very important to enhance fiscal space over the medium-term. On the other hand, the external debt ratio to GDP is very high in Bhutan, which could constrain economic development, depending on the changes of the situations in international financial markets. Thus prudent debt management is considered critical for reducing the vulnerability of countries under the current global crisis. Understanding these differences is of great importance in order to assess ways to help Bhutan strengthen their responses to the crises.
Second, given that (monetary, fiscal policy and external debt management) policies could be interlinked, their effectiveness to address the crisis may depend on how well they are coordinated and managed at the national level.
Third, the workshop will invite high-level officials from a few neighbouring countries and allow domestic participants to learn from other neighbouring countries' experiences, discuss best practices, and understand why some policies may work in some contexts but not in others. It is expected that such learning could form the basis for enhanced cooperation across countries in the region not only to strengthen their responses to the present crises but also to enhance their capacity to effectively mobilize financial resources for their long-run development.
This workshop is the second activity of a two-year project of ESCAP. It is also in accordance to a recent resolution approved during the 65th session of the Commission, which requested ESCAP to assist members “in building their capacity to make appropriate policy responses that mitigate the impact of the economic crisis, restore growth and avoid future global shocks”.
Mr. Aynul Hasan
Chief, Development Policy Section
Macroeconomic Policy and Development Division
Tel: (662) 288-1636
Fax: (662) 288-3007