The World Bank

Toward Economic Resilience: Why Bhutan Needs Universal Basic Income Over Recurrent Stimulus PlansIntroductionFor over a decade, Bhutan has implemented Economic Stimulus Plans (ESPs) in response to economic challenges, especially aiming to address issues like unemployment, poverty, and the fiscal downturn caused by external shocks. However, these ESPs, particularly those introduced in 2013 and 2024, have faced extensive criticism due to their limited impact and issues with accessibility, sustainability, and inequitable benefit distribution. Now, more than ever, Bhutan stands at a critical economic juncture. Instead of cycling through stimulus plans with limited effectiveness, Bhutan could explore an innovative solution—Universal Basic Income (UBI). UBI offers a simpler, more inclusive, and potentially transformative approach to economic resilience and aligns well with Bhutan’s guiding principle of Gross National Happiness (GNH).This article aims to illustrate the shortcomings of past ESPs and propose UBI as a more viable alternative to foster sustainable economic well-being in Bhutan.Shortcomings of the ESPs in BhutanDespite their ambitious goals, Bhutan’s ESPs in 2013 and 2024 were hindered by similar issues that reduced their effectiveness. These issues reveal the fundamental flaws of traditional stimulus approaches that prioritize specific sectors over the broader economic and social fabric.ESP 2013: A Program with Limited Reach and Oversight Challenges1. Ineffective Implementation and Monitoring: ESP 2013 aimed to address structural economic challenges by increasing liquidity in financial institutions, supporting small enterprises, and creating employment. However, it lacked effective oversight, leading to poor utilization of funds. Misallocation was widespread, with some funds used to service existing debts rather than for productive investments, diluting the program’s intended impact on economic recovery.2. Non-Performing Loans (NPLs) and Banking Vulnerabilities: The injection of credit into the banking sector caused a rise in NPLs, creating financial risks for banks. By prioritizing rapid disbursement without adequate assessment, the ESP contributed to unsustainable loan defaults, threatening Bhutan’s financial stability and impacting its fiscal health.3. Failure to Reduce Unemployment: Although unemployment was a key concern, ESP 2013’s focus on capital-intensive projects, such as importing machinery, did little to create jobs domestically. Much of the funding was directed towards machinery imports rather than supporting job-generating activities in Bhutan, ultimately limiting the program’s impact on employment creation.4. Widening the Rural-Urban Divide: While ESP 2013 aimed to foster economic resilience, it disproportionately benefited urban areas and businesses with established networks, excluding rural communities from meaningful participation. This unbalanced distribution of benefits inadvertently exacerbated Bhutan’s rural-urban divide.ESP 2024: Complex Processes and Limited Accessibility1. Reluctance from Financial Institutions (FIs): Under ESP 2024, collateral-free loans at a low interest rate of 4% were intended to stimulate economic activity. However, FIs were hesitant to participate due to perceived high risks, imposing strict eligibility criteria and documentation requirements. This reluctance led to sluggish disbursement, with only 12 out of 193 applications approved as of October 2024.2. Bureaucratic Barriers and Cumbersome Application Processes: ESP 2024 demanded extensive documentation and sectoral clearances, creating barriers for small businesses and rural applicants. These bureaucratic obstacles discouraged many potential beneficiaries, making the ESP more accessible to urban, connected applicants while excluding those in rural areas with limited access to resources.3. Strain on Financial Institutions and Fiscal Risks: The ESP 2024 places the risk of repayment on banks, mandating them to return funds to the government by 2029. Given the challenges of loan repayment in a struggling economy, this model risks further destabilizing financial institutions and placing long-term fiscal strain on Bhutan’s economy. The Case for UBI: A Path to Economic Inclusivity and StabilityConsidering these challenges, UBI emerges as a compelling alternative to Bhutan’s traditional ESPs. UBI’s design as an unconditional, regular cash payment directly to citizens would address many of the issues encountered by ESP 2013 and 2024, providing a more sustainable, equitable, and efficient approach to economic resilience.1. Inclusive and Simplified Access: Unlike ESPs that rely on complex applications, eligibility criteria, and multiple approvals, UBI is unconditional and accessible to all. It eliminates the need for documentation and reduces administrative costs, ensuring that even Bhutan’s rural populations have equal access to economic support.2. Direct Economic Stimulus: UBI would stimulate economic activity from the ground up by providing citizens with a steady income. This direct injection of funds increases purchasing power, promotes consumer spending, and supports local businesses. By putting money directly in the hands of citizens, UBI would boost demand across Bhutan, including in rural areas that are often underserved by traditional stimulus measures.3. Reduction of Poverty and Inequality: UBI provides a universal safety net, reducing poverty and income inequality. It ensures a minimum income for all, directly addressing Bhutan’s high youth unemployment and bridging the income gap between rural and urban areas. By reducing poverty and inequality, UBI aligns with Bhutan’s core principle of Gross National Happiness, prioritizing social welfare alongside economic growth.4.Support for Entrepreneurship and Education: With financial stability assured, citizens would be encouraged to pursue entrepreneurship, education, and vocational training, contributing to a dynamic and skilled workforce. UBI provides the security needed for individuals to take economic risks, potentially fostering a culture of innovation and self-employment among Bhutan’s youth.5. Reduced Administrative Costs: Implementing UBI would reduce the high administrative costs associated with ESPs, as it involves direct cash transfers rather than complex, sector-specific projects. By removing intermediaries, UBI would lower operational expenses, ensuring that more funds are directed towards citizens rather than administrative overhead. Global Lessons and UBI’s Alignment with Gross National HappinessInternational examples show that UBI can positively impact well-being, employment stability, and economic resilience. Programs like the Stockton SEED in California demonstrated that UBI encourages employment and financial stability, while the Alaska Permanent Fund Dividend has helped reduce poverty and improve child well-being. The GiveDirectly program in Kenya has empowered rural communities, reduced poverty, and fostered local economic growth, highlighting UBI’s potential for poverty alleviation in rural Bhutan.For Bhutan, UBI aligns seamlessly with Gross National Happiness by reducing financial stress, promoting social equality, and enhancing well-being. UBI’s direct support approach resonates with Bhutan’s holistic values, fostering a balanced, inclusive society where economic growth serves human happiness rather than purely financial metrics.Moving Forward: UBI as a Foundation for Bhutan’s Economic ResilienceThe recurring shortcomings of Bhutan’s ESPs reveal the limitations of sector-specific, complex stimulus programs in addressing systemic economic issues. UBI offers a transformative, long-term solution that addresses these limitations by providing a simple, inclusive, and direct financial safety net. By stimulating local economies, reducing poverty, and fostering entrepreneurship, UBI could become the foundation for a resilient Bhutanese economy that aligns with GNH principles.It’s time to rethink economic recovery through Universal Basic Income. UBI represents an opportunity to build an economy that is inclusive, sustainable, and responsive to the needs of all citizens. Instead of recycling stimulus plans with limited reach, Bhutan can lead the way in creating a robust economic model centered on the well-being and happiness of its people. ... See MoreSee Less

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