Bhutan - Hydropower Export Boom : Its Macroeconomic Impacts and Policy Implications

World Bank

Bhutan - Hydropower Export Boom : Its Macroeconomic Impacts and Policy Implications

Autores

World Bank

Editor

Washington, DC

Descripción

Bhutan has shown remarkable economic performance over the last two decades. Growth during the second half of the 1990s was particularly strong, with annual Gross Domestic Product (GDP) growth averaging 6.5 percent. A large part of this performance has been supported by generous inflows of foreign aid and buoyant electricity exports to India, which have spurred growth both directly by expanding export earnings and indirectly by stimulating investment in the construction and transport industries. Growth prospects for Bhutan look bright, supported by enormous hydropower generation potential. In particular, the scheduled commissioning of the Tala hydropower project in 2005/06 is expected to give a major boost to growth by tripling the country's power generation capacity. While the expansion in power exports has brought significant benefits to Bhutan, there has been concern that it may not be an 'unmitigated blessing.' Despite large net inflows of foreign capital, Bhutan's macroeconomic indicators suggest that inflation has so far been modest and under control. The results of the empirical analysis of the Bhutanese economy indeed confirm that the power exports to India as well as financial assistance have caused real appreciation of the ngultrum against the rupee over time, through increased private spending and short-term monetary disequilibrium. Despite the real appreciation, however, the study finds little evidence to suggest contraction or stagnation of the non-power tradable sector. While the performance of the tradable sector may have been stronger in the absence of the real appreciation, thus far there is no sign of the Dutch disease, or the Dutch condition, in the Bhutanese economy. This paper examines empirically the macroeconomic impacts of Bhutan's increased power exports to India. It is the first serious attempt to address the presence of the Dutch disease in the Bhutanese economy. Previous attempts had been hampered by lack of sufficiently long time series data. Four sets of key questions are addressed in this study: (i) what are the features of the power export boom in Bhutan? Is it a temporary or permanent phenomenon? How large are power exports? (ii) Have power exports appreciated the real value of the ngultrum? If so, would further increase in power exports put further upward pressure on the ngultrum? (iii) What have the impacts on the tradable sector been? Are there Dutch-disease symptoms? (iv) Are these impacts sizable enough to require policy interventions? If so, what kind of policy options is then available to the Government?

Palabras clave

ACCESS TO MARKETS, ADVERSE EFFECTS, AGENCY RISK, AGRICULTURAL LAND, AGRICULTURE, AIR QUALITY, ALCOHOL ABUSE, BALANCE OF PAYMENTS, BANK LENDING, BIODIVERSITY, BUSINESS OPPORTUNITIES, CAPITAL ACCOUNTS, CARBON, CARBON DIOXIDE, CLEAN WATER, COMMERCIAL BANKS, COMMODITIES, COMMODITY, COMMODITY PRICE, COMMODITY PRICES, COMPETITIVE INVESTMENT, COMPETITIVENESS, COMPREHENSIVE STRATEGY, CORPORATE SOCIAL RESPONSIBILITY, CURRENCY, DEBT, DEMOGRAPHIC, DEVELOPMENT PROJECTS, DEVELOPMENT STRATEGIES, DEVELOPMENT STRATEGY, DISEASES, DISPOSABLE INCOME, DISSEMINATION, DISTRIBUTIONAL EFFECTS, DIVIDENDS, ECONOMIC DEVELOPMENT, ECONOMIC GROWTH, ECONOMIC IMPLICATIONS, ECONOMIC OVERHEATING, ECONOMIC SECTORS, ECONOMIC VALUE, EDUCATED WOMEN, ELDERLY, ELECTRICITY GENERATION, EMPLOYMENT OPPORTUNITIES, ENDANGERED SPECIES, ENVIRONMENTAL, ENVIRONMENTAL CONSERVATION, ENVIRONMENTAL COSTS, ENVIRONMENTAL DAMAGE, ENVIRONMENTAL EDUCATION, ENVIRONMENTAL IMPACT, ENVIRONMENTAL IMPLICATIONS, ENVIRONMENTAL REGULATIONS, ENVIRONMENTAL RISKS, ENVIRONMENTAL SUSTAINABILITY, ETHNIC GROUPS, EXCHANGE RATE, EXPENDITURES, EXPLOITATION, EXPORT SECTOR, EXPORTS, FINANCIAL CRISIS, FINANCIAL MANAGEMENT, FINANCIAL SECTOR, FINANCIAL SECTORS, FINANCIAL SYSTEM, FISCAL POLICY, FISH, FISHING, FOOD SECURITY, FOREIGN DIRECT INVESTMENT, FOREST COVER, FUTURE GROWTH, GDP, GOOD GOVERNANCE, GOVERNMENT AGENCIES, GROSS DOMESTIC PRODUCT, GROWTH RATE, GROWTH RATES, HEALTH RISKS, HEAVY METALS, HUMAN CAPITAL, IFS, INCOMES, INDUSTRIAL DEVELOPMENT, INDUSTRIALIZATION, INEQUALITY, INFORMATION SYSTEM, INSTITUTIONAL CAPACITY, INTANGIBLE, INTERNATIONAL ACCOUNTING STANDARDS, INTERNATIONAL POVERTY LINE, INVESTMENT CLIMATE, LABOR PRODUCTIVITY, LARGE-SCALE INVESTMENTS, LEGAL FRAMEWORK, LOCAL COMMUNITIES, LOCAL DEVELOPMENT, LOCAL GOVERNMENTS, LOCAL POPULATION, LOSS OF LAND, LOW-INCOME COUNTRIES, LOW-INCOME COUNTRY, MACROECONOMIC STABILITY, MALARIA, MALNUTRITION, MALNUTRITION AMONG CHILDREN, MANDATES, MARKET PRICE, MEAT, METALS, MIDDLE-INCOME COUNTRY, MIGRATION, MILLENNIUM DEVELOPMENT GOALS, MINES, MINISTRY OF EDUCATION, MINISTRY OF HEALTH, NATIONAL BORDERS, NATIONAL DEVELOPMENT, NATIONAL GOVERNMENT, NATIONAL INCOME, NATIONAL LEVEL, NATIONAL LEVELS, NATIONAL POLICY, NATIONAL POVERTY, NATIONAL POVERTY LINE, NATIONAL PROJECT, NATURAL CAPITAL, NATURAL RESOURCE, NATURAL RESOURCE BASE, NATURAL RESOURCE MANAGEMENT, NATURAL RESOURCES, NEW PRODUCTS, NUTRITION, OPPORTUNITY COSTS, PER CAPITA INCOME, POLICY DIALOGUE, POLICY ENVIRONMENT, POLICY FRAMEWORK, POOR, POOR PEOPLE, POPULATION DENSITY, PORTFOLIO, POSITIVE EFFECTS, POTENTIAL INVESTORS, POVERTY ERADICATION, POVERTY INCIDENCE, POVERTY LINE, POVERTY RATES, POVERTY REDUCTION, PRESENT VALUE, PRIVATE ENTITIES, PRIVATE INVESTMENT, PROGRESS, PUBLIC DEBT, PUBLIC PARTICIPATION, RAPID GROWTH, REAL GDP, REAL GROWTH RATE, REAL WAGES, REGULATORY FRAMEWORK, REGULATORY REGIME, REINVESTMENT, REMOTE AREAS, REMOTE RURAL AREAS, REPATRIATION, REPUTATION, RESOURCE MANAGEMENT, RESOURCE USE, RESPECT, RESPONSIBLE INVESTORS, RISK EXPOSURE, RURAL, RURAL AREAS, RURAL ELECTRIFICATION, RURAL POPULATION, RURAL ROADS, SANITATION, SAVINGS, SECURITY CONCERNS, SOCIAL CAPITAL, SOCIAL CHANGES, SOCIAL CONSEQUENCES, SOCIAL COSTS, SOCIAL IMPACT, SOCIAL INFRASTRUCTURE, SOCIAL RISKS, SOCIAL STANDARDS, SOCIAL TENSIONS, SOCIOECONOMIC DEVELOPMENT, STATE BANKS, STATE ENTERPRISE, STRONG GOVERNANCE, SUSTAINABLE DEVELOPMENT, SUSTAINABLE ECONOMIC GROWTH, SUSTAINABLE GROWTH, SUSTAINABLE USE, TAX, TAX RATE, TAX REVENUES, TAXATION, TECHNICAL ASSISTANCE, TECHNICAL CAPACITY, TIMBER, TRAINING OPPORTUNITIES, TRANSACTION COSTS, TRANSPARENCY, TRANSPORTATION, URBAN CENTERS, VALUE ADDED, VOLATILITY, WATER RESOURCES, WEALTH, WEALTH CREATION, WORLD DEVELOPMENT INDICATORS, WORLD TRADE, WORLD TRADE ORGANIZATION, WTO, YOUNG MEN