Post on 28-Jun-2020
FINANCING NEEDS & GAPS IN BHUTAN
National Workshop:Supporting Asia-Pacific LLDCs And Bhutan In Mobilizing Resources For The SDGs
December 11, 2018
Bhutan, Thimphu
Lali Gogoberidze
1. Infrastructure Financing Needs & Gaps
2. Private Sector Financing Needs & Gaps
2
COMMON CHALLENGES & NEEDS OF LLDCS § Geographical disadvantages and remoteness
§ Underdeveloped infrastructure
§ High transportation costs & limited access to the global markets
§ Low level investment and FDI
§ Low level of inclusion in global value chains
§ Low level of diversification
§ Lack of modern technologies, innovation and needed skills
§ …….
3
Challenges
§ Access to high quality infrastructure
§ Improvement of efficiency in infrastructure financing
§ Diversification of economy
§ Attraction of FDI
§ Inclusion in global trade & value chains
§ Improvement of access to finance
§ ….
Needs
SOME CHARACTERISTICS OF LLDCS
4
LLDCs Population 000'
Area( km2)
Population Density (per km2)
Distance from Ports
Range (km)
GDP mln current pr. $
GDp Per Capita current pr. $
GDP growth rate %
Afghanistan
35,530 652,864 54.4 1 200–1 60020,270 623 -2.4
Armenia 2,930 29,743 102.9 800–2 40010,529 3,489 3
Azerbaijan 9,828 86,600 118.9 80053,049 5,439 0.7
Bhutan 0,808 38,394 21.2 8002,074 2,677 5.2
Kazakhstan
18,204 2,724,902 6.7 3 500181,754 10,312 1.2
Kyrgyzstan 6,045 199,949 31.5 4 500–5 2006,572 1,106 3.5
Lao PDR 6,858 236,800 29.7 600–75012,585 1,850 7.6
Mongolia 3,076 1,564,116 2 1 700–6 00011,758 3,973 2.3
Nepal 29,305 147,181 204.4 1 100–1 20020,658 725 2.7
Tajikistan 8,921 142,600 63.7 1 500–2 5007,853 926 4.2
Turkmenistan
5,758 488,100 12.3 4 50037,597 6,997 6.5
Uzbekistan 31,911 448,969 75 2 70069,004 2,308 6.8
Source: UN Data 2017
INTERNATIONAL TRADE
§ International trade policy is one of the key factors, which has special importance for LLDCs
§ Tariff and non-tariff barriers play an important role, influencing on cost of goods and services and on FDI, especially for countries, having small market
§ Main export commodities of Bhutan: electricity, iron and steel, mineral fuel and inorganic chemicals
§ Bhutan’s export of manufactured goods exceeds export of raw materials and constitutes 50.9% of total export ü In difference with the most of other
LLDCs
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LLDCs ShareofMerchandiseExportsinGlobalTrade
(%)
Exportswithintheregion(%)
2015
Afghanistan 0.004 91.3
Armenia 0.013 29.9
Azerbaijan 0.089 38.9
Bhutan 0.003 84.9
Kazakhstan 0.273 64.9
Kyrgyzstan 0.010 84.0
LaoPDR 0.022 96.8
Mongolia 0.035 88.5
Nepal 0.004 73.8
Tajikistan 0.007 66.3
Turkmenistan 0.039 94.3
Uzbekistan 0.059 62.5
TradeIndicators2017
3.9
21.2
41.7
26.7
35.8
27.325
55.6
3.6
17.319.3
15.8
0
10
20
30
40
50
60
Afghanistan
Armenia
Azerbai jan
Bhutan
Kazakhstan
Kyrgyzstan
LaoPDR
Mongolia
Nepal
Tajikistan
Turkmenistan
Uzbekistan
ESCAP Aggregates24.4%
MerchandiseExporttoGDP2017(%)
Source:ESCAPstatistics
Source:SelectedIndicatorstoMonitortheViennaProgramme ofAction2017and2018
INTERNATIONAL RATINGS
6
167154
126
110
81 76 74 70
4128 25
47.7751.26
57.115…
66.08 67.4 67.74 68.3375.37 77.89 78.64
0
10
20
30
40
50
60
70
80
90
0
20
40
60
80
100
120
140
160
180
Afga…
Lao…
Tajik…
Nepal
Bhut…
Uzbe…
Mon…
Kyrg…
Azer…
DTFScores
Ranking
Best
WBDoingBusiness2019
WBLogisticsPerformanceIndex2018
26
103 107122 122 122
135 135
157 161 167177
0
20
40
60
80
100
120
140
160
180
200
Bhutan
Mongolia
Armenia
Azerbaijan
Kazakhstan
Nepal
Kyrgyzstan
Laos
Uzbekistan
Tajikistan
Turkmenistan
Afghanistan
Highlycorrupted
TICorruptionPerception2017
160 149 134 126 130 121 108 99 92 82 71
1.95
2.172.34 2.41 2.37 2.5
2.55 2.58 2.612.7
2.81
0
0.5
1
1.5
2
2.5
3
0
20
40
60
80
100
120
140
160
180
Afganistan
Bhutan
Tajikistan
Turkmenistan
Mongolia
Nepal
Kyrgyzstan
Uzbekistan
Armenia
LaoP.D.R.
Kazakhstan
Score
Rank
1. Infrastructure Financing Needs
7
INFRASTRUCTURE INVESTMENT NEEDS GLOBALLY
§ McKinsey & Company – approximately $ 57 trillion investment to meet infrastructure development needs for 2013-2030
üWhich is 60% above the volumes of investment implemented during last 18 years
§ ADB - $ 26 trillion during 2016-2030 for developing countries in Asia, with USD 1.7 trillion investment per year
§ WB - $1.3 trillion annually for the next 5-6 years
§ OECD – a gap of $400-500 billion with a total current spent of about $800-$900 billion annually
8
ACCESS TO INFRASTRUCTURE AND NEEDS
9
0
0.1
0.2
0.3
0.4
0.5
0.6
Kazakhstan
Azerbaijan
Armenia
KyrgyzRepublic
Uzbekistan
Tajikistan
Bhutan
Turkmenistan
Mongolia
LaoP.D.R.
Nepal
Afghanistan
Scores
Developingcountriesaveragescore:0.431
Countries withspecialneeds averagescore:0.288
AccesstoPhysicalInfrastructureIndex2015
Source:UNESCAP
Countries Score Rank
Kazakhstan 0.520 6
Azerbaijan 0.476 9
Armenia 0.453 11
KyrgyzRepublic 0.370 21
Uzbekistan 0.365 22
Tajikistan 0.309 26
Bhutan 0.269 29
Turkmenistan 0.269 29
Mongolia 0.235 32
LaoPDR 0.225 34
Nepal 0.217 35
Afghanistan 0.072 40
0% 5% 10% 15% 20% 25% 30% 35%
AfghanistanArmenia
Azerbai janBhutan
KazakhstanKyrgyzRepubl ic
LaoPDRMongolia
NepalTajikistan
TurkmenistanUzbekistan
%ofGDP
2018-2030
Transport Energy ICT WSS
InfrastructureFinancingNeeds
Source:Economies
Transport Energy ICT WSS Total
Afghanistan 10% 12% 6% 1% 29%
Armenia 1% 1% 1% 0% 3%
Azerbaijan 1% 1% 1% 0% 3%
Bhutan 4% 3% 1% 0.1% 8%
Kazakhstan 1% 1% 0% 0% 2%
Kyrgyz Republic 10% 5% 3% 1% 19%
Lao PDR 4% 4% 3% 0% 10%
Mongolia 2% 2% 1% 0% 5%
Nepal 7% 8% 4% 0% 19%
Tajikistan 3% 6% 4% 1% 15%
Turkmenistan 3% 2% 0% 0% 5%
Uzbekistan 2% 3% 2% 1% 7%
OFFICIAL DEVELOPMENT ASSISTANCE
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ODAreceivedbyLLDCs,mlnUSD
0 5000 10000 15000 20000 25000 30000
ArmeniaAzerbaijanKazakhst anKyrgyzstanTajik istan
Turkmenist anUzbek istanMongoliaLao PDR
Afghanist anBhutanNepal
2012-2016
2012 2013 2014 2015 2016
ODAFinancing2012-2016 (gross,mlnUSD)
Armenia Azerbaijan Kazakhstan Kyrgyzstan Tajikistan Turkmenistan
Uzbekistan Mongolia LaoPDR Afghanistan Bhutan Nepal
Total ODA received by Bhutan in 2012-2016 - $ 577.90 mln
WHAT SHOULD THE GOVERNMENT FINANCE?
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ICT ?WaterEnergy ?Roads
OPTIONS FOR CLOSING FINANCING GAPPublic
Sources
Borrowing
Budget
Private Sources
PPI
PPP
Invest efficiently
Maintenance
PIM
OPTION 1. FOR CLOSING FINANCING GAP
Public Sources
Borrowing - Donors
Budget
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Revenue(% of GDP)
Revenue, excluding
grants (% of GDP)
Grants (%of GDP)
Tax revenue
(% of GDP)
Current Expenditures
(% of GDP)
Capital Expenditures
(% of GDP)
Net lending (+) / net
borrowing (-) (% of GDP)
Afghanistan 54.0 10.1 43.9 7.6 36.9 18.4 -1.3
Armenia 23.7 23.1 0.7 20.9 25.1 3.4 -4.7
Azerbaijan 34.2 34.2 0.0 15.6 24.8 12.1 -2.7
Bhutan 26.6 19.0 7.5 13.8 18.9 8.5 -0.8
Kazakhstan 14.1 13.7 0.4 9.8 15.5 1.0 -2.4
Kyrgyzstan 32.4 30.1 2.3 16.8 27.2 6.2 -1.0
Lao PDR 20.3 15.8 4.5 13.5 14.9 9.2 -3.7
Mongolia 23.4 22.6 0.9 11.8 24.0 4.1 -4.7
Nepal 21.1 19.3 1.8 16.7 15.9 4.2 1.1
Uzbekistan 25.3 25.3 0.0 17.5 19.4 2.5 3.4
East Asia & Pacific 17.0 16.3 0.6 11.9 18.1 0.9 -2.0
East Asia & Pacific (excluding high income) 16.2 16.1 0.1 10.1 16.4 0.6 -0.7Europe & Central Asia 35.3 33.4 1.9 19.1 35.6 1.5 -1.9
Europe & Central Asia (excluding high income) 31.7 27.6 4.2 14.1 30.2 2.8 -1.3
Source: World Development Indicators 2018 and author’s calculation
• General government debt to GDP is high – about 93% (5 years average 2012-2016)
• Concessional financing share in Bhutan’s total foreign debt: 20%
• CAD: around -26% (5 years average 2012-2016)
FISCAL CONDITIONS
§ Forthcoming graduation from Least Developed Country status raise important policy issues
§ Fiscal policy in Bhutan is broadly prudent (~ -1% of GDP in 2018; +2.2% in 2019);
§ Debt distress evaluated as moderate (~100% of GDP);
§ Domestic public debt market is small
§ Tax-to-GDP ratio is maintained under 15%, but is declining in coming years;
§ Bhutan is receiving extensive IMF support for implementing the GST (goods and service tax)
13
OPTION 2. FOR CLOSING FINANCING GAP
Private Sources
PPI – Private Participation
in Infrastructure
PPP – Public Private
Partnership
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§ Deregulation
§ Low taxes
§ Eliminated corruption and Red Tape
§ Correctly defined tariffs
§ Privatization
§ Mostly positive experience worldwide
§ Effective tool for public infrastructure financing – leveraging private finances
§ PPP framework is must
§ According to Knowledge Lab There are two PPP projects of USD218 million value
OPTION 3. FOR CLOSING FINANCING GAP
Invest efficiently
Maintenance
PIM
15
1. Fiscal Rules
2. National & Sec toral Planning
3. Central-Local Coordination
4. Management of PPPs
5. Company Regulation
6. Multiyear Budgeting
7. Budget Comprehensiveness
8. Budget Unity9. Project Appraisal
10. Project Selection
11. Protection of Investment
12. Availability of Funding
13.Transparency of Execution
14.Proje ct Management
15. Monitoring of Assets
EMs World
1. Private Sector Financing Needs
16
BUSINESS FRIENDLY ENVIRONMENT
§ Natural restrictions - small geographic and respectively - market size § Response: Open markets, Free trade agreements, Customs, ER Controls…
§ Tax administration
§ Corruption Free
§ Doing Business
§ Exchange Rate Control
§ Control on capital repatriation
§ Access to finance:§ Financial Sector§ Capital Market
17
FOREIGN DIRECT INVESTMENT - FDI
18
(4,500) (2,500) (500) 1,500 3,500 5,500 7,500 9,500 11,500Afghanistan
Armenia
Azerbaijan
Bhutan
Kazakhstan
Kyrgyzstan
LaoPDR
Mongolia
Nepal
Tajikistan
Turkmenistan
UzbekistanFDIinLLDCs2017-2017
$mln
2017 2016 2015 2014 2013
14.00
32.00
17.00
(13.00)
10.00 0.8
1.6
0.8
-0.6
0.5
-1
-0.5
0
0.5
1
1.5
2
(20.00)
(15.00)
(10.00)
(5.00)
-
5.00
10. 00
15. 00
20. 00
25. 00
30. 00
35. 00
2013 2014 2015 2016 2017 Shar
e in
GD
P %
$ m
ln
FDI in Bhutan 2013-2017
FDI share in GDP is low compared to LLDCs average
FDI/to GDP ratio average
§ Bhutan: 0.6%§ LLDCs: 3.7%
ACCESS TO FINANCE
§ World Bank’s Investment Climate Assessment in 2016 identified access to finance, access to skilled labor, and access to externalmarkets as three binding constraints.
§ The ngultrum’s (BTN) peg to the rupee has served the economy well; About three-quarters of public external debt is denominated in Indian rupees, and both exports and imports are predominantly with India (70–90 percent).
§ The financial performance of the banking sector remains weak but risks appear contained overall.
§ Bhutan began implementing Priority Sector Lending (PSL)
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0.000.100.200.300.400.500.600.70
0.000.100.200.300.400.500.600.700.800.901.00
Armenia
Azerbaijan
Bhutan
Kazakhstan
Kyrgyzstan
LaoPDR
Mongolia
Nepal
Tajikistan
Turkmenistan
Uzbekistan
Financ ialInsti tDepthFinanc ialInsti tAccessFinanc ialInsti tEff icienc y
FinancialInstitutions'Indexes
Bhutan: Financial Institution Index: 0.37§ Financial Institution Depth – 0.11§ Financial Institution Access – 0. 32§ Financial Institution Efficiency – 0.71
0.000.050.100.150.200.250.300.35
0.000.100.200.300.400.500.60
Armenia
Azerbaijan
Bhutan
Kazakhstan
Kyrgyzstan
LaoPDR
Mongolia
Nepal
Tajikistan
Turkmenistan
Uzbekistan
FinancialMarketIndexes
FinancialMarketDepth FinancialMarketAccess
FinancialMarketE fficiency FinancialMarkets
Bhutan: Financial Market Index: 0.03§ Financial Market Depth – 0.09§ Financial Market Access – 0. 00§ Financial Market Efficiency – 0.00
Financial Development Index 2017
DF Index 0.20
MSME FINANCING NEEDS AND GAPS IN LLDCs
LLDCs* MSMEGap%ofGDP
CurrentSupplyofFinanceUSDmln
CurrentDemandforFinanceUSD
mln
MSMEFinanceGapUSDmln
SMEFinanceGapUSDmln
MicroFinanceGapUSDmln
Afghanistan 24 32 4,723 4,723 2,995 1,728
Armenia 11 1,266 2,411 1,145 1,016 129
Azerbaijan 13 6,895 13,700 6,805 5,207 1,598
Bhutan 5 192 284 91 83 9
Kazakhstan 26 9,510 56,581 47,071 43,352 3,719
Kyrgyzstan 21 92 1,496 1,404 1,389 15
LaoPDR 21 439 3,048 2,609 1,166 1,442
Mongolia 11 699 1,992 1,293 1,240 53
Nepal 17 731 4,332 3,601 2,857 744
Tajikistan 18 240 1,691 1,452 1,219 233
Turkmenistan N/AN/A N/A N/A N/A N/A
Uzbekistan 18 1,732 13,522 11,790 10,159 1,631
Total 21,828 103,779 81,984 70,684 11,301Average 17 1,984 9,434 7,453 6,426 1,027
EastAsia-Pacific 18 2,754,833 5,142,496 2,387,352 2,109,501 277,851
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§ MSME financing gap in Bhutan: 5% of GDP
§ Lowest among LLDCs
CONCLUSION
§ What is done well§ Low Corruption§ Low taxes
§ Low unemployment§ Lower financing gap
§ What can be done better§ Trade liberalization
§ Exchange restrictions§ Tax system§ Financial sector health§ Doing business indicators
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Some General Recommendations:
Ø Enhance Private Sector Participation in infrastructure financing through the development of Public Private Partnership
Ø Development of capital market
Ø Support to increase of financial literacy
Ø Improve attractiveness for FDI in infrastructure and non-infrastructure sectors
Ø Encouragement of FDI-SMEs linkages
Ø Support to internationalization of SMEs
Ø Support to the development of tourism sector
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EndofPresentation