𝐁𝐡𝐮𝐭𝐚𝐧’𝐬 𝟐𝟎𝟐𝟒-𝟐𝟎𝟐𝟓 𝐛𝐮𝐝𝐠𝐞𝐭 𝐨𝐮𝐭𝐥𝐢𝐧𝐞𝐬 𝐚 𝐬𝐭𝐫𝐚𝐭𝐞𝐠𝐢𝐜 𝐯𝐢𝐬𝐢𝐨𝐧 𝐟𝐨𝐫 𝐠𝐫𝐨𝐰𝐭𝐡 𝐰𝐡𝐢𝐥𝐞 𝐫𝐚𝐢𝐬𝐢𝐧𝐠 𝐜𝐨𝐧𝐜𝐞𝐫𝐧𝐬 𝐚𝐛𝐨𝐮𝐭 𝐩𝐨𝐭𝐞𝐧𝐭𝐢𝐚𝐥 𝐞𝐜𝐨𝐧𝐨𝐦𝐢𝐜 𝐫𝐢𝐬𝐤𝐬

…𝒕𝒉𝒆 𝒈𝒐𝒗𝒆𝒓𝒏𝒎𝒆𝒏𝒕’𝒔 𝒇𝒊𝒏𝒂𝒏𝒄𝒊𝒂𝒍 𝒑𝒍𝒂𝒏 𝒇𝒐𝒄𝒖𝒔𝒆𝒔 𝒐𝒏 𝒊𝒏𝒇𝒓𝒂𝒔𝒕𝒓𝒖𝒄𝒕𝒖𝒓𝒆 𝒂𝒏𝒅 𝒔𝒖𝒔𝒕𝒂𝒊𝒏𝒂𝒃𝒊𝒍𝒊𝒕𝒚, 𝒃𝒖𝒕 𝒓𝒊𝒔𝒊𝒏𝒈 𝒅𝒆𝒃𝒕 𝒂𝒏𝒅 𝒊𝒏𝒇𝒍𝒂𝒕𝒊𝒐𝒏𝒂𝒓𝒚 𝒑𝒓𝒆𝒔𝒔𝒖𝒓𝒆𝒔 𝒄𝒐𝒖𝒍𝒅 𝒑𝒐𝒔𝒆 𝒄𝒉𝒂𝒍𝒍𝒆𝒏𝒈𝒆𝒔 𝒕𝒐 𝒍𝒐𝒏𝒈-𝒕𝒆𝒓𝒎 𝒔𝒕𝒂𝒃𝒊𝒍𝒊𝒕𝒚

By Kezang Choden

The government’s budget for the fiscal year (FY) 2024-2025, totaling Nu 97,654.829 million, outlines a financial plan aimed at addressing immediate service delivery needs while setting the stage for long-term development. However, economists are raising concerns that the budget’s allocation across various sectors could lead to significant economic challenges, particularly in terms of national debt, inflation, and fiscal sustainability.

The largest portion of the budget, Nu 50,809.905 million, is allocated to recurrent expenditure, which includes the operational costs required to maintain government services, such as wages, interest payments, and administration. This allocation represents an increase of about Nu 5.26 billion compared to the previous year, driven largely by the expansion of key programs like the Gyalsung initiative (which focuses on skills development and employment for youth) and rising interest payments on both domestic and external debts. While these increases demonstrate the government’s commitment to public service, economists warn that the growing recurrent expenditure could put additional pressure on the country’s fiscal position. With recurrent expenditure now accounting for more than half of the total budget, Bhutan faces the risk of accumulating higher deficits, with the fiscal deficit for FY 2024-2025 projected at 5.2 percent of gross domestic product (GDP). This could lead to inflationary pressures, destabilizing the broader economy and affecting the cost of living for citizens.

Another critical issue is the rising burden of debt servicing. Interest payments are a significant part of recurrent expenditure, totaling Nu 7,147.351 million. Of this amount, Nu 4,491.491 million is allocated for external debt servicing, highlighting Bhutan’s increasing reliance on international borrowing. Economists express concerns that as debt grows, a larger portion of the budget must be used to service debt, which limits the funds available for other essential services and infrastructure projects. While servicing debt is necessary to maintain Bhutan’s financial standing, excessive debt repayments could constrain the government’s ability to invest in critical sectors like education, healthcare, and infrastructure development.

Public sector wages and operational costs make up a substantial portion of recurrent expenditure, with Nu 27,000 million- 53 percent of the recurrent budget- allocated for salaries, wages, and benefits for government employees. This ensures that public sector workers remain well-compensated, helping to maintain high service standards in key sectors. However, a significant share of the recurrent budget is also spent on operations and maintenance of existing infrastructure, which limits the government’s ability to allocate funds for new projects. While it is essential to maintain existing services, economists caution that excessive focus on operational costs could divert resources from long-term developmental goals, slowing down the pace of infrastructure and economic growth.

Capital expenditure, projected at Nu 38,344.313 million, represents a major investment in Bhutan’s infrastructure, with an increase of Nu 9.03 billion from the previous fiscal year. The allocation is focused on structural development, including roads, bridges, and government buildings, which will likely stimulate economic activity, create jobs, and drive demand in the construction sector. However, economists are concerned that a significant portion of this funding- 41.6 percent- is sourced from loans, while 43.1 percent is funded by grants. While grants provide valuable non-repayable funding, the reliance on loans could increase Bhutan’s debt levels, raising questions about the sustainability of the country’s fiscal position. If the government is unable to effectively manage this borrowing, it could face rising debt servicing costs in the future, which would limit its ability to finance other vital projects.

One of the more positive aspects of the budget is its focus on green and sustainable development, with substantial allocations for projects such as the Green and Resilient Affordable Housing Sector Project and the Green Power Readiness Enhancement Project. These initiatives align with Bhutan’s broader long-term goals of fostering climate-resilient growth, improving environmental sustainability, and enhancing living standards. From an economic standpoint, these projects have the potential to position Bhutan as a leader in green energy and sustainable housing, attracting international funding and expertise in these areas. Additionally, the growing global interest in sustainability could provide Bhutan with new economic opportunities, including the creation of green jobs and the development of new technologies.

However, the government’s approach to managing external debt remains a concern. The budget allocates Nu 6,182.040 million for loan repayments, including a significant amount for servicing corporate debt- where the government acts as an intermediary for businesses. While this arrangement alleviates the immediate burden on corporations, it places additional financial responsibility on the government, increasing national debt levels. Economists caution that as Bhutan’s debt profile grows, it could face challenges in securing favorable borrowing terms in the future, potentially leading to higher interest costs and a weakened financial position.

Overall, country’s FY 2024-2025 budget is a complex mix of opportunities and challenges. The government’s focus on infrastructure development and green projects demonstrates a clear long-term vision for growth, but economists warn that the increasing fiscal deficit, reliance on borrowing, and rising debt servicing costs could undermine economic stability in the years ahead. The government must carefully manage these risks, ensuring that it can sustain its growth trajectory without jeopardizing fiscal health. Efficient implementation of the budget, along with a disciplined approach to managing debt and spending, will be critical in achieving Bhutan’s ambitious development goals without compromising the country’s economic stability.