Bhutan languishing in austere revenue

The government is doing everything possible in order to fill the gaping holes in the economy

By Tashi Namgyal

The country’s expenditure continues to rise while its resources increase just at a snail’s pace or at the least,remains stagnant. The current budget for this Financial Year (FY) has increased by 8 percent compared with the last FY.

The parliament just recently appropriated a budget of Nu 80,483.150 million for this FY. However, the total resources for the FY is estimated at Nu 56,756.582 million, of which internal resources make up Nu 36,240.271 million and external grants make up Nu 20,525.311 million.

Fiscal deficit for the Financial Year (FY) 2021-22 is estimated at a whooping Nu 17,153.753 million corresponding to 8.59 percent of the GDP.

Govt.’s measures to tackle the situation

In order to bring down the burden on recurrent expenditures, the country’s expenses will have to be met through domestic revenues. Due to this there was a shortfall of 15 percent in domestic revenue during the last FY.

Worst still, a shortfall of 22 percent is expected from domestic revenues during this FY.

According to the finance minister, the constitution requires meeting the recurrent expenditure from internal resources and the recurrent budget has been adjusted within the estimated domestic revenue.

While inflation and other priorities are attributed to the rising budget, the government implemented some budget policies as a temporary measure. The government will also rationalize travels (ex-country and in-country) within the allocated budget.

Further, there will be no hiring of private buildings for office space and new establishments. The activation of salary indexation will be postponed while civil servants will not be entitled to their transfer benefits. Payment in monetary value in lieu of vehicle quota will also be deferred temporarily.

“If the domestic revenue improves, the short term fiscal measures will be lifted,” finance minister Namgay Tshering said.

To ensure optimal utilization of the estimated domestic revenue, the recurrent budget has been allocated as Annual Grants to the Local Governments (LG) and Block Grants to all other Budgetary Bodies. Rationalization of the recurrent expenditure will be carried out if the revenue performance falls below the estimates.

With domestic revenue just enough to cover recurrent expenditures, capital budget will be financed through external grants, concessional external grants and domestic borrowings.

In order to ensure that capital budget is provided only for critical and Covid-19 related activities, the government has deferred all new constructions, procurement of vehicles, and rationalized other activities.

“All these measures are for recurrent budget and temporary. It has been submitted for Royal Assent,” Prime Minister (PM) Dasho Dr. Lotay Tshering said.

In order to execute these measures, Budgetary Bodies will be subject to certain guidelines. There will be a ceiling on maximum expenditure limits to implement activities within the approved allocation.

All Budgetary Bodies including LGs will be required to re-align their Annual Performance Agreement (APA) targets with the approved budget for this FY.

Supplementary incorporation of external funds shall be carried out during the course of the year. Re-appropriation and technical adjustments will be carried out in which Budgetary Bodies but re-appropriation from ‘mandatory’ expenses to ‘controllable’ expenses shall be prohibited.

Budgetary Bodies shall prioritize in-country travels and mandatory ex-country travels and manage within the approved budget. All Budgetary Bodies are required to initiate Annual Procurement Plan (APP) to avoid last minute spending in order to minimize wasteful expenditure.

Flagship programmes will however continue to be implemented without any disturbance. Annual grants to LGs will have to be expended according to the guidelines provisioned under the Annual Grants Guidelines for Local Governments, 2020, and any revisions issued by the Finance Ministry.

Among others, austerity measures will also be implemented on grants to central agencies, new appointments and retirement benefits, work charges, procurement of school stationeries, hiring of hotels and vehicles, award of repair and maintenance of government buildings to specialized firms, maintenance budget for GC roads, cluster finance services, and disaster relief and response.