𝐎𝐏𝐈𝐍𝐈𝐎𝐍 – 𝐈𝐧 𝐀 𝐅𝐫𝐚𝐠𝐢𝐥𝐞 𝐑𝐞𝐜𝐨𝐯𝐞𝐫𝐲, 𝐋𝐨𝐚𝐧 𝐃𝐞𝐟𝐞𝐫𝐦𝐞𝐧𝐭 𝐈𝐬 𝐄𝐜𝐨𝐧𝐨𝐦𝐢𝐜 𝐒𝐞𝐧𝐬𝐞, 𝐍𝐨𝐭 𝐒𝐨𝐟𝐭 𝐏𝐨𝐥𝐢𝐜𝐲

The perception that Bhutan’s economy has recovered from the pandemic is misleading. A closer look reveals a slowdown in consumer activity, increasing reports of businesses operating with little or no revenue, and a rising number of loan defaults. These are not temporary symptoms but signals of deeper structural weaknesses and persistent demand-side constraints that warrant immediate policy intervention. One such measure, though not ideal under normal circumstances, is the consideration of another round of loan repayment deferment.

From an economic perspective, loan deferments are generally deployed to address liquidity constraints during extraordinary downturns. They are not designed as permanent relief. However, Bhutan is not experiencing a typical post-crisis recovery. Inflation remains high, household incomes are compressed, and domestic market activity remains muted. Under these conditions, deferment becomes a rational policy response rather than an exceptional one.

Bhutan’s recovery has been uneven. While sectors such as tourism have shown some revival, others like retail, entertainment, and small-scale services continue to struggle. Informal reports and small surveys suggest that many businesses experience long stretches without customers. These patterns reflect weak domestic demand and eroding consumer confidence.

This situation makes timely loan repayments a major challenge. Small businesses, which form the backbone of Bhutan’s private sector, are heavily reliant on daily turnover. When revenue is low and fixed loan installments resume, many struggle to service their debts. For some, it becomes nearly impossible.

The banking sector is already witnessing an uptick in non-performing loans (NPLs). Rising defaults threaten financial sector stability and risk tightening credit conditions across the economy. In a fragile recovery, this could lead to a vicious cycle of reduced credit, lower investment, and weaker demand.

Inflation adds further strain. Businesses still operating are spending more to keep afloat while earning less. From fuel to utilities, operational costs have increased, while cautious consumer spending has squeezed revenue. This mismatch between rising costs and stagnant incomes erodes profit margins and repayment capacity.

Without timely intervention, many middle-income households risk foreclosure or loss of collateral- often homes or land pledged against loans. This strips families of long-term financial security and has serious social consequences. As assets are lost and debt accumulates, the gap between economically secure and vulnerable populations widens. This contradicts Bhutan’s development goal of equitable and inclusive growth.

Furthermore, financial distress is prompting a growing number of Bhutanese- particularly youth and small entrepreneurs- to seek opportunities abroad. The rising interest in overseas employment and education, especially in countries like Germany, reflects not just global trends but local frustrations. As the domestic economy offers fewer viable paths, migration becomes an escape.

This trend has a dual cost. It shrinks the local consumer base, reducing domestic demand. At the same time, it contributes to labor force depletion, weakening Bhutan’s long-term recovery potential. If left unaddressed, this will undermine economic resilience and social cohesion.

Critics may argue that deferments distort credit discipline or weaken financial institutions. These concerns are valid. But it is important to distinguish between insolvency and liquidity shortfalls. Most borrowers are not insolvent. They are temporarily constrained by sluggish economic conditions. A well-targeted, time-bound, and transparent deferment can provide necessary breathing space without encouraging irresponsible borrowing.

In fact, such a measure can enhance financial sector stability over time. Preventing mass defaults reduces the pressure on banks to raise provisioning levels, which in turn preserves their lending capacity. This helps maintain the credit flow that businesses need to survive and grow.

Deferment can also act as a fiscal stabilizer. By preventing bankruptcies and forced asset sales, it sustains consumption and employment- both of which contribute to government revenue through indirect taxation. In this way, deferment complements broader fiscal and monetary objectives.

However, blanket relief is not the solution. The government, in collaboration with financial institutions, should develop clear eligibility criteria to prioritize support for the most affected sectors and borrowers. Relief should be directed to businesses with verifiable cash flow problems and households at risk of losing vital assets.

At the same time, the government must focus on stimulating demand through targeted public investments, business incentives, and employment programs. Loan deferment is only one part of a broader policy mix. It is a short-term measure, not a substitute for structural reform.

Under ordinary economic conditions, loan deferment would be inadvisable. But these are not ordinary times. Bhutan is navigating a fragile recovery marked by subdued domestic activity and growing financial vulnerability. A temporary, well-calibrated deferment of loan repayments is not only reasonable- it is necessary.

Bhutan must respond with pragmatism and compassion. Recovery cannot be sustained through policy declarations alone. It must begin where the damage is most visible- among struggling households, small businesses, and underserved communities. The cost of inaction will far outweigh the fiscal effort required to extend this temporary relief. In times like these, policy must serve people first. Only then can recovery take root in the real economy.

Dawa Penjor,
Phuentsholing