𝐄𝐃𝐈𝐓𝐎𝐑𝐈𝐀𝐋- 𝐂𝐨𝐮𝐧𝐭𝐫𝐲’𝐬 𝐁𝐮𝐝𝐠𝐞𝐭 𝐅𝐨𝐜𝐮𝐬𝐞𝐬 𝐨𝐧 𝐆𝐫𝐨𝐰𝐭𝐡 𝐛𝐮𝐭 𝐌𝐚𝐲 𝐅𝐚𝐜𝐞 𝐒𝐞𝐫𝐢𝐨𝐮𝐬 𝐄𝐜𝐨𝐧𝐨𝐦𝐢𝐜 𝐂𝐡𝐚𝐥𝐥𝐞𝐧𝐠𝐞𝐬

Bhutan’s fiscal plan for the year 2024-2025, amounting to Nu 97,654.829 million, presents an ambitious roadmap aimed at addressing immediate needs while laying the foundation for sustained long-term development. With significant investments earmarked for infrastructure and green initiatives, such as the Gyalsung program and the Green Power Readiness Enhancement Project, the government is positioning the nation for future growth. Yet, the allocation raises serious concerns about rising fiscal deficits, escalating debt burdens, and inflationary risks, which could undermine Bhutan’s long-term financial stability.

A considerable portion of the budget, specifically Nu 50,809.905 million, is allocated to recurrent expenditure, which covers the costs of government operations, including salaries, interest obligations, and program implementation. This represents an increase of Nu 5.26 billion compared to the previous year, partly driven by the expansion of flagship initiatives like Gyalsung, which focuses on youth skills development, and rising debt servicing costs. As recurrent expenditure now accounts for more than half of the total budget, Bhutan faces the challenge of managing these growing expenditures without exacerbating the fiscal deficit. With the fiscal deficit projected to reach 5.2 percent of GDP in FY 2024-2025, economists caution that inflationary pressures could result, diminishing purchasing power and raising living costs for citizens.

The country’s rising debt load is another pressing issue. The government has allocated Nu 7,147.351 million for debt servicing in this budget, a significant portion of which-Nu 4,491.491 million- is earmarked for external debt repayments. While borrowing has been essential for financing infrastructure projects, economists warn that Bhutan’s increasing reliance on external loans could strain its fiscal health in the future. As debt levels rise, the government will face mounting pressure to allocate more resources to servicing this debt, thereby limiting its ability to fund essential services or invest in critical areas such as education, healthcare, and social infrastructure.

Public sector wages make up a significant share of recurrent expenditure, with Nu 27,000 million (53 percent of the recurrent budget) allocated to employee compensation. While maintaining competitive salaries is essential for ensuring a motivated and efficient public sector, the growing share of the budget devoted to wages and operational costs limits the ability to allocate sufficient funds for new development projects. Streamlining government operations and reducing inefficiencies could help redirect financial resources to areas that foster long-term economic growth.

Capital expenditure for infrastructure development has been set at Nu 38,344.313 million, reflecting the government’s commitment to modernizing Bhutan’s physical infrastructure. However, economists express concern over the sustainability of this funding approach. A substantial portion-41.6 percent-of capital expenditure is financed through loans, while 43.1 percent is funded by grants. Although grants do not require repayment, the increased reliance on loans could escalate Bhutan’s debt burden, especially if future revenue generation does not match the rise in debt servicing obligations.

On a more positive note, the budget highlights the government’s emphasis on green and sustainable development. Projects such as the Green and Resilient Affordable Housing Sector Project hold promise for economic diversification and environmental resilience. These initiatives align with Bhutan’s long-term goals of fostering sustainable development while offering new economic opportunities, including job creation in renewable energy and green technologies. Such initiatives also have the potential to attract international funding, positioning Bhutan as a global leader in sustainable development.

To mitigate the risks posed by rising debt and fiscal deficits, Bhutan must adopt a multifaceted approach. First, enhancing revenue generation through comprehensive tax reforms, broadening the tax base, and improving tax compliance would reduce the dependence on borrowing. Moreover, economic diversification-particularly through the development of sectors beyond hydropower, such as technology, agriculture, and services-could provide a more balanced and stable revenue base. Strengthening public-private partnerships (PPPs) for infrastructure development could further alleviate fiscal pressures by encouraging private sector investment in public services.

Furthermore, the government must adopt a more sustainable approach to debt management. By seeking concessional loans with favorable terms and exploring alternative financing mechanisms-such as green bonds or climate finance-it could alleviate the strain of servicing high-interest external debt. Strengthening fiscal discipline and enhancing transparency in public financial management will also be crucial for ensuring that funds are spent efficiently and effectively, helping to avoid wasteful expenditures.

Bhutan’s 2024-2025 budget represents a bold vision for growth but also presents significant economic challenges. The government must strike a careful balance between fostering development and ensuring fiscal stability. By improving revenue collection, optimizing public spending, and adopting a more sustainable debt management strategy, Bhutan can avoid the pitfalls of rising debt and budget deficits. Ultimately, strategic investments in infrastructure, green projects, and economic diversification, coupled with disciplined fiscal governance, will be critical in ensuring that Bhutan’s growth is both sustainable and financially viable.