Tuesday, April 25, 2017

Gross National Happiness: Bhutan’s Experience To Go Beyond GDP

In 1974, His Majesty the King Jigme Singye Wangchuck introduced a unique development philosophy called Gross National Happiness (GNH) in a small Himalayan Kingdom called Bhutan. GNH is a development approach that goes beyond GDP and seeks to achieve a harmonious balance between the material and non-material development (spiritual, emotional and cultural needs of society). This approach puts people at the center of the development philosophy and beliefs that the state’s primary objective is to ensure well-being and happiness of all its citizens.

Internationally, the effort to go beyond the GDP and make happiness and wellbeing as the key indicators of growth can be seen in some countries and international organizations such as, Happy Planet Index of New Economics Foundation first introduced the 2006, Thailand’s Green and Happiness Index released in 2007, Sarkozy-Stiglitz Commission commissioned in France in 2008, David Cameron’s happiness index of United Kingdom in 2010, Brazil’s embracement of GNH or “Felicidade Interna Bruta” to develop government policies, Canadian Index of Wellbeing released by Canada in 2011, and Happiness index launched by South Korea in 2012. Furthermore, in 2011, UN General Assembly adopted the agenda proposed by Bhutan to make happiness a “development indicator”

Today, Bhutan has over five decades of experience of adopting GNH as the economic development philosophy. Instead of measuring development on the basis of economic growth alone, GNH broadens the concept of development. GNH is mainstreamed in developing all five-year plans and national policies through four pillars, nine domains, GNH index, and GNH policy screening tools. The four pillars are: i) good governance; ii) sustainable socio-economic development; iii) preservation and promotion of culture; and iv) environment conservation. The Nine domains includes the conventional economic domains of measuring economic growth such as -living standards, education, health, and good governance- and also includes the non-conventional domains such as environment, community vitality, time-use, psycholigoical well-being, and cultural resilience.  Bhutan undertakes a nation wide GNH survey, after every two years, to come up with GNH index to measure well being of the people and the insufficiencies among those not identified as happy. This survey uses nine domains, 72 indicators and 151 variables to measure happiness to come up with GNH index that provides indicators to government to help guide development, allocate resources, and design necessary policy interventions and action plans. Furthermore, Bhutan uses the GNH policy-screening tool (which is, within the scope of nine domains of GNH) to assess/review all national policies.  This screening tool has rejected some national policies, because the proposed policies could not meet the minimum required threshold. In particular, the proposal for Bhutan accession to WTO and the draft mineral policy was rejected. It was viewed that these proposals will heighten inequality and corruption, deteriorate the environment, and decrease psychological wellbeing.

The current pattern of world’s consumption and production is unsustainable and is rapidly depleting our planet’s natural resources, and therefore many economists scramble to offer explanations and solutions. The conventional/mainstream economics has resulted in mad pursuit of economic growth without taking into account its natural and social costs has resulted into serious of conflicts such as ecological crisis (pollution of earth, air and water that threatens all our lives today), social conflicts, economic wars, above all crises of our ethics and values. These shortcomings provoke an impetus for the world to come up with an alternative/new way of economic thinking. Bhutan has responsibly accepted capitalism and adopted sustainable economic production through GNH development model. In the world’s quest to measure economic growth beyond GDP, GNH can serve as framework to embrace true development that is in harmony with the needs of people and rhythms of the natural world.

Sunday, July 24, 2016

PhD. Interview Presentation 21 July 2016

PhD (Macroeconomics)
Interview presentation slide was prepared within a time limit of 1 hour
It was presented to the Interview Panel members (Dasho Penjo, RMA Governor (Chair); Choiten Wangchuk, DPA DG; Sonam P, DoHPS DG; and Tashi Pem, Director RCSC
Date: 21 July 2016
It was presented within 10 mins + 1 min extra

Saturday, March 12, 2016

Analysis of Overall Macroeconomic Challenges of Bhutan

During the 4th Executive Forum[1] held on December 2015 at RIGGS-Phuenstholing, the Chairperson of the RCSC opened the floor to the executives asking them to share “one burning national concern and what will they do to address it?”. Several executives took their turn and touched upon institutional, philosophical and cultural issues. However, one executive[2], really fascinated everyone's attention when he said, “I and my fellow executives have witnessed Bhutan making tremendous progress in social development (like health, education etc), but little have we progressed in fiscal consolidation and macro-economic structural reforms. Therefore, with impending decline in grant assistance for a foreign aid dependent country like ours, it cannot be denied that our children will suffer major economic imbalances in the near future”.

Bhutan has achieved remarkable socio-economic progress over the past few decades, and hence our country is soon expected to elevate its status from being the least developed country (LDC) to a middle income country. Moreover, our country has currently achieved all the millennium development goals, indicating enhanced national capacity to deliver humanitarian services. Notwithstanding this progress, Bhutan is facing new challenges which need to be looked at holistically using the lens of a macro-economic sector. To cite a few, currently, there is a narrow economic base which is manifested through growing trade imbalances and may get worse in view of the impending decline in grant assistance. This is mainly due to poor private sector development, which in turn is partially to be blamed for rising unemployment particularly amongst the youth. Such an awry situation is worsened by sizable import of skilled and unskilled labor from the neighboring countries and lack of rural employment opportunities. As a result, one can witness widening disparities in income levels and increasing rural–urban migration. Moreover, our financial institutions are underdeveloped, which is understandable because of the weak economic base and simplistic financial networks. In order to ameliorate the impending awkward situation from a macro-economic perspective, , I strongly feel that the following key challenges in the areas of monetary, hydropower, taxation and pension need to be addressed:

 i) Monetary challenges: The monetary policies in Bhutan cannot be effective to influence the aggregate demand with the current exchange regime and infant (immature) securities and short-term fund markets. As such, there is a strong need to study the costs and benefits of a small and landlocked economy to transit to a more liberal economy. Furthermore, there is a need to make structural reforms to facilitate and encourage development of market for securities and short-term fund.

ii) Hydropower challenges: Although, hydropower contributes to one-fifth of the country’s GDP and one-third of the Government's revenue, yet this sector is not free from major economic challenges of financing and pricing and also from its impacts on other sectors. In regard to financing, with Bhutan’s prospect of graduation from LDC, it is inevitable that the government and investors have to shift from concessional grants and loans to commercial financing with heavy covenants. This will eventually lead to higher pricing of hydropower which may in turn affect affordability of power in the domestic and international markets. Furthermore, large investments in hydropower relative to economy present us with a unique development opportunity to move to a higher income trajectory. However, it creates adverse implications which are difficult to comprehend and manage during the construction phase necessitating a study of the economic absorptive capacity in conjunction with balancing realization of economic self-reliance and environmental integrity & sustainability. In this regard, there is a need to synthesize the complex challenge at macro-economic level to assess and formulate an appropriate policy intervention for hydropower.

iii) Taxation challenges: Given the impending decline in grant assistance as Bhutan’s income rises, generating adequate domestic revenue is a key to financing its developmental plans. However, the current tax system is characterized by a relatively narrow tax base. For instance, the tax base was merely 40% in 2013-2014 which isone of the lowest in the world. There is greater need for a multi-pronged effort to increase sources of revenues and to improve the taxation policy. There is an immediate need to focus on: (a) rationalizing the system of tax holidays and pruning the list of tax exemptions and (b) reforming the system of indirect taxation. In this context, the introduction of VAT and tax measures to attract FDIs should be studied with its attendant advantages including increased revenue collection.

iv) Pension challenges: The separate proposal for pension is under progressed

[1] An Executive Forum is a platform in which executives from various organizations meet and discuss issues related to civil servants and the 5 reforms the RCSC is currently undertaking
[2] Dorji Dradrul, Dzongdag for Gasa Dzongkhag

Need for Reforms in Pension and Pension Systems in Bhutan

Well-being is the fundamental value of our country as a GNH striving state, and therefore improving welfare is a step towards reflecting this societal value. In light of this, although Bhutan has instituted several modern social welfare schemes over the past few decades, the national pension system is passing through a crisis of confidence. There are several problems with the current arrangements on pension systems. The increasing number of retirees, un-sustainability of pension by 2042, inheritance of financial burden of current pay-as-you-go system by younger generation, and low returns from schemes, demands urgent needs to avert the looming pension crisis and promote better economic security. In the midst of all these, there is a need for a fresh look to design an alternative option to improve pension coverage, benefits, make its operation simpler, and ensure its sustainability into the future. Better pension system shall complement our GNH values and address the challenges of changing social cores and demographic shift of population (ageing). It will also foster aggregate rate of saving and accelerate capital market development.

Brief history about the retirement benefit schemes in Bhutan
The modern social welfare schemes were first introduced in Bhutan in 1962, which is one year after the country started to embrace modern development.  Today, the existing schemes can be categorized into: a) retirement benefits (pension, provident fund, transfer grant and gratuity); b) benefits upon death in service; and c) benefits upon disability in service. These benefits are provided by three institutions: the Ministry of Finance (MoF), the National Pension and Provident Fund (NPPF) and the Royal Insurance Corporation of Bhutan Ltd. (RICBL). The pension and provident fund is typically run on a pay-as-you-go basis with defined benefit (pension) and defined contribution (Provident fund). The entire pension expenditure is charged in the annual revenue expenditure account of the government.

Some of the key problems that have emerged in the pension system are as follows:

Demographic aging: The age structure of the population is changing drastically with increasing life expectancy and declining birth rates. The result of such a demographic transition will be a larger proportion of older people. It is projected that Bhutan will enter into ageing population by the year 2029[1].

Changing social mores: The pressures of urbanization and migration have eventually led to collapse of extended family system and deterioration of traditional means of support to the elderly.

Limited and skewed coverage: Existing welfare schemes covers only the organized sectors, which includes regular employees of civil and public service. Unfortunately, the bulk of the workforce which are from the semi or unorganized sectors has little access to formal system of old age income security guaranteed by a pension system. The pension coverage is further diminishing due to stronger growth in unorganized employment.

Inheritance of financial burden of pay-as-you-go system by younger generation: The senior employees of the government who have enrolled into the pension and provident fund before 2002 has made very less contribution to the pension accounts and will be receiving generous benefits when they retire. And their pension annuities will be paid from the contributions of young employees. There lies an inherent systemic issue with this pension system.

Low returns from provident funds: The employees are worse-off by putting money in provident fund accounts as the NPPF pays only an average accrued interest rate of 4.5% per annum which is a meager amount as compared to 8.75% interest rate offered by the banking sector even for recurring deposits.

Rising financial burden of public pension schemes: The rising number of retirees poses the potential to jeopardize the long-term financial sustainability of the NPPF. In view of the increasing annual trend of government employees retiring from civil service, the sustainability of pension fund is becoming questionable. According to a recent study conducted by Dasho karma Ura[2], the pension fund is projected to become unsustainable by the year 2042[3].

[1] Population Perspective Plan 2010- GNHC
[2] Bhutan’s Chief Economist and Head of Centre for Bhutan Studies
[3] Dasho Karma Ura (2014), “Size and Cost of Bhutanese Civil Service”, p. 34-36, Centre for Bhutan Studies, Thimphu

Public Sector Reforms and Progress Under His Majesty the Fourth Druk Gyalpo

Modern Bhutan has been blessed with benevolent and farsighted leadership of Fourth Druk Gyalpo Jigme Singye Wangchuck, who shaped our National Vision for public sector reforms and development in our country.  Unlike other countries, all reform initiatives were then guided by the development philosophy of Gross National Happiness.  It is within this overarching development perspective and the Bhutan Vision 2020 framework, coupled with a frank recognition of existing constraints, shortcomings and emerging challenges that has helped shape and determine the public sector reforms and progress in our country.  The public sector reforms and progress in Bhutan under the leadership of His Majesty the Fourth Druk Gyalpo is presented by firstly categorizing it into three phases, secondly, describing the internal drivers and finally presenting the major milestones for reforms in the Civil Service.

Three phases of administrative reforms
Phase I: Centralization (1970s-1980s)
When His Majesty the Fourth Druk Gyalpo took over the responsibilities from his father in 1972, Bhutan had implemented just two Five Year Plans with the help of few hundreds of public servants which comprised of mostly expatriates. Understanding that a small country like ours with very little natural and human resource base, His Majesty the Fourth Druk Gyalpo centralized all planning and implementation of development programmes in the central agencies. These central agencies took responsibility for critical capacity developments both at the central and local level through development of infrastructures such as road communication networks, agriculture, health and educational facilities.

The National Planning Commission was established with His Majesty as the Chairperson (until 1991) to formulate and mobilize resources. Key agencies such as the Ministry of Development with specialized departments were also established to implement the plans. At the Dzongkhags, the Dzongkhag administration and the Dzongkhag Development Committee supported the work of the Planning Commission and the other central agencies to implement the development programs. Subsequently, Royal Civil Service Commission was also established to manage all aspects of public administration in the country.

Phase II: Decentralization (1990-2007)

Learning from the past and recognizing the need to bring services closer to the public, in the second phase of His Majesty’s reform saw a gradual shift in our development from centralization to decentralization.

At the political level, Bhutan witnessed major political changes through decisions of His Majesty to devolve full executive powers and functions to an elected council of Ministers (June 1998). At the central level, major restructuring exercise of the government organisations were undertaken through good governance exercises (1999) to enhance good governance and streamline the role of planning and implementation of developmental programmes by the Central Agencies and the Dzongkhags and Gewogs.  At the community level, DYT (1981) and GYT (1991) were established and later enacted Local Governance Act (2009) to involve the grass root community participation in political, social and economic decision making including setting their own development priorities.

Also in this phase, deregulation, corporatization and privatization of several government agencies were undertaken specially in sectors of banking and insurance, telecom, electricity and transport. Several Agencies were delinked from the Civil Service to promote corporate and private sector developments.

Phase III: Democratization (2008 onwards)

On 30th November, 2001, His Mjaesty the Fourth Druk Gyalpo commanded drafting of the Constitution towards having parliamentary democratic system of governance. Direct consultations and discussions on national issues such as laws and public policies in particular constitutional provisions and development programmes were traditionally held by His Majesty the King in person. These major reforms were initiated by His Majesty primarily to ensure the sovereignty and security of the nation and “to make democracy work for well-being of the Bhutanese people for all time to come”.

In both the previous phases, the Civil Service played a central role in shaping and implementing all public sector reforms. However, His Majesty envisaged the need to establish a stable and efficient public administration for peaceful and orderly political succession and for the success of democratic governance. Towards this, His Majesty established all key Constitutional institutions and developed legal frameworks/ institutions and institutional mechanism to operationalize the Constitutional provisions. The Election Commission of Bhutan and Anti-Corruption Commission of Bhutan were established under the Royal Command in 2006. And this phase finally followed with fundamental shift in repositioning of the role of Civil Service institutions and civil servants as professional bodies and professionals capable of delivering programmes to the elected governments.

Internal Drivers for Development in Bhutan
Under the leadership and guidance of His Majesty the Fourth Druk Gyalpo the Civil Service was engaged in all developmental activities and public sector reforms. The Civil Service evolved as strong backbone of the country with highest level of good governance, integrity, values and Tha-dam-tsig. Such achievements mainly owe to His Majesty for providing the following internal drivers for development in Bhutan.
  • Political will - enlightened leadership- respect, trust and confidence reposed in our His Majesty the Fourth Druk Gyalpo
  • Clarity of National Vision – communicated through consultations and discussion by HM the King in person.
  • People-centred - stakeholders involvements & consultations for any major issues such as laws, development programmes and policies
  • Education and Human Resource Development Policies – that shaped the quality and character of future leaders & citizens
  • A good system of public administration that upholds principle of transparency, efficiency, accountability rules and regulations. Highlighting the importance of a good system of public administration, His Majesty the King said
“A good system of government that is not dependent on any individual or personalities, a system that will function efficiently because of its in-build merits, that is legacy we must create for our future generations. Because of our small size and because we are presently at the crossroads of development, we have the necessary flexibility and unique opportunity to create a system of administration that will be of greatest benefit to our country’s future interest, security and well-being”.

Major milestones in Civil Service reforms
The major milestones in Civil Service under the leadership of His Majesty the Fourth Druk Gyalpo are highlighted in the table below. From the several initiatives, the visionary initiative to grant the Royal Charter and the efforts to contain the growth of Civil Service deserve highest level of admiration and respect.

His Majesty the Fourth Druk Gyalpo in granted the Royal Charter of the Royal Civil Service Commission in 1982. It marked the beginning of a plan and coordinated approach in addressing human resource management and development needs of various sectors in the Government. The Royal Charter forms the policy for the RCSC to maintain small, compact and efficient Civil Service and a fundamental legal framework in managing and framing rules of the Civil Service. Since then the RCSC has come a long way in promoting efficiency, effectiveness and integrity among civil servants.

Finally, although, the civil servants under the leadership of His Majesty the Druk Gyalpo, were engaged in almost all developmental activities ranging from education and health needs to administering the mega hydro power projects and financial institutes that form the backbone of the country’s economy, the growth of Civil Service was very much contained within the natural population rate of 3% (1982-2006), keeping the compensation of civil servants as share of GDP and total spending as low as 3.1% and 9.10% respectively (2002-03),  as compared to 5.7% and 17.30% in year 2013-14.

Gross National Happiness: Bhutan’s Experience To Go Beyond GDP

In 1974, His Majesty the King Jigme Singye Wangchuck introduced a unique development philosophy called Gross National Happiness (GNH) in a...