Bhutan and the pursuit of national happiness

• Author: Sanjay Kalra
• Position: IMF Asia and Pacific Department
• Pages: 262

Page 262

Gross National Happiness-a concept closely identified with the tiny landlocked Himalayan Kingdom of Bhutan-may draw a chuckle, but its four pillars- sustainable and equitable socioeconomic development, environmental conservation, cultural preservation and promotion, and good governance-form a large part of what sensible nations aspire to. This philosophy of holistic development has guided Bhutan now for over three decades of general political stability. This stability-and substantial external assistance, including from its large neighbor India-has fostered measured change, economic growth, modernization, and integration into the international community even as Bhutan has sought to overcome the constraints of a difficult terrain and limited natural resources.

Over the past two decades, real GDP growth has averaged a robust 61/2 percent a year, and substantial progress has been made on a number of Millennium Development Goals. Growth was powered by an expansion of the hydropower sector-the backbone of the economy-including the Chukha project in the mid-1980s. And there is considerable additional potential. Indeed, GDP is projected to grow by almost 20 percent in fiscal year 2006/07 as the large 1,020-megawatt Tala hydropower project comes on stream and pushes average annual real GDP growth to 9-10 percent for the remainder of the decade.

In addition, annual inflation has remained in the low single digits, thanks to the exchange rate peg, at par, to the Indian rupee. International reserves have remained comfortable, although the Royal Monetary Authority guards zealously its convertible currency reserves, the major source of which is external aid since the bulk of exports, including electricity, are directed to India.

Bhutan seems to have done all right, but challenges are looming, including job creation for a young, growing population; management of public debt; and poverty reduction.

Creating jobs. In the coming years, jobless growth is a real possibility. The absorption capacity of the public sector is limited relative to the large number of labor market entrants, mostly high-school leavers. These entrants are unlikely to possess the skills-in areas such as construction and management- that the market demands. Policy action is required to create an enabling environment in which the private sector produces jobs. Creating such an environment will entail streamlining the regulatory regime, liberalizing the trade and foreign...