PM shares concerns of increasing import, hydropower and hard currency reserves
In a break away from past traditions in reporting the State of the Nation, Prime Minister Dr Lotay Tshering, talking of the economic status, stressed the importance of cutting down on recurrent expenditure and increasing the capital budget for the economy to progress.
Lyonchhen said that in the 12th Plan projected recurrent budget was 195 billion (B) compared to the Nu 115B or 38 percent capital budget of the total budget outlay. The capital budget in the 2022-23 fiscal year has been increased to 52 percent from 37 percent of Nu 74.81B budget outlay to launch various initiatives.
The distribution capital budget was 10.4 percent in 2018-19 (in six months), 18.4 percent in 2019-20, 22.2 percent in 2020-21, 25 percent in 2021-22, and 24 percent in 2022-23. Given the huge recurrent expenditure, it comprises about 37 percent of the country’s gross domestic product (GDP).
Lyonchhen said that the government had kept the annual budget proportionately lower during the initial years in the 12th Plan, and designed it to peak during the middle of the term. “It is like the flight of an arrow. Rising and gradually tapering towards the end of the term to reduce wastage from rushed spending,” Lyonchhen said.
Lyonchhen said the country’s GDP at 4.5 percent is better compared with many countries. Globally, he said that the GDP is estimated at 3 percent this year and would grow at 3.5 percent next year. “If we can maintain Bhutan’s GDP above 4.5 percent next year, we can come out from the economic downturn caused by the Covid-19 pandemic.
Import and export
Sharing his concerns on the economy, Lyonchhen said Bhutan is an import-dependent country but that almost 100 percent of the imported goods are finished goods while almost 100 percent of exports are raw materials without value addition. This he said is contributing to the massive trade deficit besides eating into the convertible currency reserves.
Lyonchhen added that most of the imported goods are food items and if the trend is not reversed, import figures could reach over 90B equivalent to USD 1.2B this year. “Such trade deficits could take longer years for the country’s economy to recover.”
Overall import until September this year increased by 46.2 percent compared to the same period in the previous year, whereas exports increased by 10.4 percent only.
“Everything we consume, our daily habits have implications on our dollar reserve. The total external reserve stands at USD 776.63 million (M) for now,” Lyonchhen said.
For the economy to improve the country needs more convertible currency and the government’s focus is inevitably on such investments, he added.
Eight foreign direct investment projects worth Nu 356.29M are already underway and seven more worth Nu 3.64B have been given in-principle approval this year, according to the detailed State of the Nation report that was distributed yesterday.
“People say if they have dollar accounts or are given more dollars, it will enable them to do more business and make profits. This could drain our dollar reserves as all profits are in Ngultrum,” Lyonchhen said.
Hydropower, which has been the main export for decades, is becoming a concern, Lyonchhen said at the joint sitting of Parliament where senior government and corporate officials were invited and the address broadcast live.
Although hydropower would still be important, looking into the details of the pricing and uncertainties is a concern and that the government is giving renewed focus on hydropower. The uncertainties surrounding global energy demand and supply and also the amount paid for electricity import during winter months is evening out revenue generated in eight to nine months, said Lyonchhen.
The country exports electricity at Nu 3 per unit, however, imports are priced at Nu 4 per unit for about three months in a year. “Import rate is bound to increase above Nu 5 per unit because of the global energy crisis,” he said. The gross revenue generation from all hydropower plants in 2021 was Nu 11.64B. In lean seasons, the country generates about 1,400MW , which is a 60 percent drop in generation.
The delays in the construction of Punatsangchhu-I and the cost escalation could make export of electricity expensive while domestic demand is increasing. “There will be no profit if we sell the Punatsangchhu-I electricity at Nu 10 per unit because the cost of construction is reaching power tariff at Nu 8 to 10 per unit,” he said.
“In the next 10 years, Bhutan will not be able to sell electricity because of the increase in the domestic demand,” Lyonchhen said.