Govt. targets to implement 95 percent of capital budget by the fiscal year end

MB Subba

The capital budget implementation rate in the first five months of the ongoing fiscal year has not decreased despite the Covid-19 pandemic derailing economic activities, the finance minister said at the press meet yesterday.

Lyonpo Namgay Tshering said that the capital budget utilisation rate as of September was 6.2 percent of the total allocation for the current fiscal year based on payments made. Implementation of capital budget stimulates economic activities and determines GDP growth.

“We are doing our best and have achieved a good result despite the restrictions,” he said, adding that it was normally difficult for the government to implement the budget in the first two quarters of the fiscal year because of tendering process and preparatory works.

The government, he said, was optimistic to implement 95 percent of the capital budget by the end of the fiscal year. 

Some of the works that will contribute to budget utilisation efforts would be improvement of farm roads and water related programmes.

The finance minister said that it was natural to have a high budget deficit in the beginning of the fiscal year. “But as you close the financial year, most of the time there is no fiscal deficit, but fiscal surplus mainly because of non-implementation of some activities.”

Fiscal surplus, he said, was more of a concern than fiscal deficit.

The government has allocated Nu 37B for capital works this fiscal year. The projected deficit of capital budget is Nu 15B, of which Nu 13B will be sourced domestically and the rest through concessional borrowings.

The government as of yesterday had realised about 38 percent of the projected domestic revenue for the fiscal year, which according to the minister was 2 percent higher than that of 2019-2020 for the same period. The total domestic revenue is estimated at Nu 33.2B.

As part of its strategy to boost domestic revenue, he said that the government would increase hydropower revenue and taxes.

He said that BIT and CIT of the income year 2019 had been deferred as people were either not able to pay or wanted to retain the money as working capital. He added tax deferment for 2020 would be looked into case by case, which means that those who can pay would pay and those who cannot need to justify.

“We have not completely shut down our economy except during the lockdown. The economy is neither on a recovery track nor experiencing the worst case scenario,” he said.

Citing a recent International Monetary Fund (IMF) report, he said the global economy had contracted by -4.5 percent. The GDP of India, the country’s single largest economic partner, has gone down by about -12 percent.

The government, he said, would continue to do its assessment based on available reports on a quarterly basis and the economy was doing fairly well in comparison with most countries. He said that it was partly because of the small size of the Bhutanese economy.

Lyonpo Namgay Tshering said that the economy would go into a recession should the GDP growth continue to be negative for a long period, which he added was not the case. The government’s fiscal and monetary interventions would help mitigate the situation.

The government has not compromised on mandatory expenses although the domestic revenue had decreased by about 14 percent, according to the minister. The recurrent budget, he said, was attuned with the forecasted revenue.

The finance minister said that it was wrong to say that the government did not have money but that it depended on how prudently the available resources were utilised.

He said that the government’s decision to allocate about 31 percent of the 12th Plan budget for the fiscal year 2020-21 was aimed at offsetting GDP loss.

The estimated GDP loss in the first six months of the Covid-19 crisis was almost Nu 5B. “Accordingly, we had to inject an additional money of Nu 5B into the economy through various activities such as frontloading of 12th Plan activities.”

Non-hydro debt about 23 percent of GDP

The finance minister said that 85 percent of the public debt was hydropower related.

The GDP, he said, had increased to 120 percent of GDP because of Punatshangchhu I and II projects. The hydropower debt, he said, stood at about Nu 180B.

He said the non-hydro budget as per the Public Finance Policy needed to be contained below 35 percent of GDP.

According to him, non-hydro debts mostly comprised concessional borrowings from Asian Development Bank (ADB) and the World Bank (WB). “The hydropower related debts, on the other hand, are self-liquidating.”

The debt repayment time frame for WB and ADB loans were 32 years and 25 years respectively.

The WB, he said, would not charge any interest except 0.75 percent as service fee. The interest rates on the ADB loans are 1 percent during the grace period (five years) and 1.5 percent after the grace period, according to him.

The finance minister said that the government had to borrow during the current situation from ADB and WB to offset the drastic drop in tourism receipts. The average annual contribution of tourism receipts in 2018 and 2019 was USD 86 million (M).

The government, he said, had limited alternatives to tourism when it came to earning convertible currency (CC). He said concessional borrowings would not only build the CC reserve but also help the economy gain through the appreciation of dollar against the Ngultrum during such a crisis.

The finance minister said that the government had received offers to defer debt repayment timeline from borrowers, including ADB and WB.

“But we don’t want to spoil our reputation in the international market by doing that. Moreover, we don’t have issues in repayment as we have already made appropriations for debt repayments in the Budget Act,” he said.