All eyes will be on the new annual budget when the winter session resumes on Monday. The government is expected to ramp up public spending to stimulate the economy hit by the Covid-19 pandemic.
This will be the second fully-fledged budget presented by Finance Minister Namgay Tshering who will end the long-standing trend of increasing ratio of recurrent expenditure to capital expenditure.
The finance minister said, “It’s the first time in many years that capital allocation is going to be higher than the recurrent expenditure.” The budget, he said, was framed based on the theme of “economic resilience and transformation”.
At a time when the Covid-19 has put a dent in the financial resources, the government has said that the overall budget would see a significant increase mainly due to an increase in the capital budget.
The change in the capital-recurrent budget ratio is mainly due to the front-loading of 12th Plan activities and reprioritisation of development activities in the wake of the Covid-19 pandemic.
The government’s stand is that the budget would prevent the recession that could turn into a full-blown economic crisis. The details of the budget will be known when the finance minister presents it in the National Assembly on Monday.
Underutilisation of budgets has been a perennial problem, at least for some years. Despite that, the government has said that there is a huge increase in the capital allocation for the year.
But the finance minister said that the budget would be dynamic. “We will review the budget every after six months and make necessary changes, if required,” he said.
The under-execution issue could worsen if the labour and material shortages are not addressed.
The prime minister put it subtly about the possibility of doing away with non-essential recurrent expenses in view of the decreased domestic income.
“It will be difficult for the government to meet the recurrent expenditure from domestic revenue if we spend as in the past,” the prime minister said.
The Constitution mandates the government to meet the recurrent expenditure from the domestic revenue.
Individuals and businesses that have been affected by pandemic are receiving a relief programmes. However, the government is yet to unveil with anything concrete in terms of long-term plans for the affected people.
The prime minister said that the government was concerned about helping the people affected by the pandemic until the normalcy returns.
The increase in the capital expenditure, vis-à-vis the decreased domestic revenue, has put a huge pressure on the state coffer.
According to some official estimates, the government has lost almost 90 percent of the expected revenue from tourism, which is the second-largest revenue-generating industry in the country after hydropower.
The pandemic has also delayed the passing of the Mines and Minerals Act. The mining sector is a major source of income for the government.
Further, the budget coincides with the implementation of the tax reforms, most of which are about exemptions and reductions.
As per the government’s own estimates, the tax reforms, which were passed by the winter session, could cost about Nu 850 million (M) annually.
The slowdown in economic activities could affect the tax-paying capacity of our businesses and individuals.
Besides multi-lateral development partners, not many bilateral partners have announced financial assistance, except Austria, which has committed Euro 520,000 to Bhutan’s Covid-19 preparedness and response.
In an earlier interview, the finance minister said that the country’s biggest development partner, India, had assured some degree of flexibility in terms of the use of the 12th Plan commitment based on priorities.
India has committed Nu/Rs 45 billion (B) for the 12th Plan.
Amid concerns about increasing national debt, one of the options for the government, observers say, is to mobilise domestic and external debt for deficit financing. But the labour and materials shortages due to the lockdown in India a stumbling block.
The prime minister said that the government had a few options, as importing labour posed Covid-19 risks. When it comes to the shortage of construction materials, he said that the government would expand the list of essential goods to ensure continuous supply.
According to some economists, another problem that could arise if the government resorts to excessive borrowing is that there would be pressure on liquidity and interest rates of banks. Another possible impact is crowding out the private sector.