… no more subsidies to SOEs

Thukten Zangpo 

The Cabinet approved the provision of a sovereign guarantee to Bhutan Livestock Development Corporation Limited (BLDCL) in availing loan amount of Nu 65 million (M) for the automated poultry processing line project.

The Cabinet directed the approval of borrowing to the finance ministry on January 30 after the Finance Ministry proposed a sovereign guarantee on January 12.

“Henceforth, the government will only provide policy support and access to credit facilities including a sovereign guarantee to all the State Owned Enterprises (SOEs) and not the subsidies,” it added.

In case the project fails and recovery of the credit or finances is needed, the Cabinet asked the ministry to review if there are clear terms and conditions that outline the payment obligations of the government in the event of failure of the particular project or insolvency of BLDCL after receiving a sovereign guarantee.

Also, to review if there is a communication process between the government, the SOEs (borrower), and the financial institutions and if there is a monitoring mechanism to ensure the utilisation of the loan of Nu 65M is not diverted elsewhere.

Statistics with the finance ministry show that the government-guaranteed outstanding loans stood at Nu 4.99 billion (B), accounting to 2.4 percent of the estimated gross domestic product (GDP) as of December last year.

It also included Nu 580.14M provided for the credits sanctioned under the National Credit Guarantee Scheme.

The sovereign guarantee was within the threshold of 5 percent of GDP prescribed by the Public Debt Policy 2016.

A sovereign guarantee is a legal guarantee from a government to backstop the obligations of SOEs.

According to the budget report 2022-23, the total budget provisioned as subsidies for this fiscal year 2022-23 was Nu 1.92B of which Nu 1.84B was for recurrent and Nu 75.89M for capital.

Of the total, Nu 1.41B was for domestic power tariff, Nu 182.77M for Bhutan Broadcasting Service Corporation Limited, Nu 10.5M for Bhutan Chamber of Commerce and Industry and Nu 50.45M as operational subsidy for community service centres under National CSI Development Bank.

Also, Nu 86.6M was provisioned for interest and principal payment on account of the purchase of aircraft, Nu 14.46M as interest subsidy and Nu 3.6M as price support to the Bhutan Agro Industries Limited.