The establishment of state-owned enterprises during the 11th Plan had put extra pressure on the national coffers in the form of increased capital and current expenditures, grants and subsidies.
According to a review on the fiscal sector by the Royal Monetary Authority (RMA), the spending on state enterprises accounted for 15 percent of total expenditure in the 11th Plan.
This was in addition to the growing needs of the current expenditure on maintenance emerging from the build-up of capital from the past and expansion in public employees.
The government, in the 11th Plan established more than six state enterprises including the Royal Bhutan Helicopter Service, Royal Bhutan Lottery Ltd., Bhutan Duty Free Ltd., Agriculture Machinery Centre, Rural Enterprise Development Corporation and Green Bhutan Corporation among others. All these SOEs are formed with 100 percent equity injection from the government.
In their observation on long term vision and five-year priority, the Interim Government (IG) pointed out that no policy formulation protocol was followed in a number of instances. “Shift in Policies such as with the Green Bhutan Corporation Limited (GBCL), Central Schools, and Farm Corporates were tabled and approved by the Cabinet without going through the established protocol,” the IG’s report pointed out.
“An outgoing government’s legacy in terms of a five-year plan could be subject to unhealthy practice of provisioning for handouts,” it warned.
The RMA report stated that public employees expanded by 3.7 percent in 2017 with periodic salary revision. Expenditure on pay and allowance constituted 40 percent of the current expenditure in the last Plan.
In the final budget of the 11FYP, it was observed that government spending limit was almost 20 percent higher than the outlay. The capital expenditure towards the end of the 11thPlan doubled that of the first years. The RMA report stated that spending on infrastructure and other economic activities accounted for more than one-third of the capital budget.
However, higher mobilisation of domestic revenue and external grants has positioned overall fiscal deficit below the target of 3 percent of GDP.
The aggregate demand in the economy was largely supported by substantial expansion in government expenditure, which is 35.6 percent of GDP. In addition, grants from development partners were able to finance almost 60 percent of the capital expenditure.
Additional excise duty refund and enhanced sales and business income tax from expansion in trade and retail business helped increase domestic revenue.
The fiscal deficit was recorded at 1.1 percent of GDP, with a surplus balance. As a result, the pressure on the current account deficit was limited to 19 percent of GDP, lower than 24.2 percent of GDP in the 2016-17 fiscal year.
Bhutan’s external imbalance continued to reflect underlying economic fundamentals of high dependency on imports, grant and debt.
The RMA report stated that the top 10 imports constitute about 30 percent of total imports, contributed largely by fossil fuel. Statistics show that the import value during 2017-18 has doubled the export proceeds. For instance, export proceeds from electricity (Nu 11.99B) was just sufficient to cover the fuel import bill from India (Nu 9.53B).
In terms of export, about 60 percent of the country’s export are from three sources.