… as expenses mounts and revenue dips

Thukten Zangpo

With expected shortfalls in domestic revenue, the fiscal deficit is expected to widen to Nu 17.15 billion (B), which is 8.6 percent of the gross domestic product (GDP) in this fiscal year 2021-22.

This means that the government would be short of Nu 17.15B (23 percent of the total approved budget) to spend in the fiscal year.

Fiscal deficit arises when the government spending exceeds its revenue.

The approved budget was Nu 73.92B.

However, the finance ministry estimated a total resources of Nu 56.76B as of December end 2021 in its second-quarter macro-economic situation report.

Of the total resources, domestic revenue is estimated at Nu 35.6B (65 percent tax and 35 percent non-tax) while the remaining were from external grants.

In the first six months, the government has spent a total of Nu 27.1B which is 36.6 percent of the total approved budget.

“The highly uneven incidence of infections (coronavirus), coupled with varied public health responses has alleviated the expenditure, “the finance ministry stated.

Of the total, Nu 17.46B (49 percent of the total current expenditure) was spent on current expenditure of Nu 17.74B domestic revenue as of December last year.

Domestic revenue fell by 4.8 percent compared to the same period in the previous year.

However, for the fiscal year, the finance ministry has revised the domestic revenue target downward by 3.5 percent (1.23B) to Nu 34.367B from Nu 35.6B.

This is mainly because  of the shortfall in profit transfer of the Royal Monetary Authority by Nu 1B and the unlikely realisation of the royalty of Nu 466.9 million from tourism as tourism is expected to resume in June this year.

Similarly, both tax and non-tax revenue has been revised down by 3.6 percent and 3.2 percent respectively.

On the other hand, the current expenditure is estimated to increase by 11.6 percent from the previous fiscal year 2020-21 because of the mandatory increase in pay and allowances, local government elections, and from interest payment.

As the Constitution mandates that the government to meet the cost of current expenditure from the domestic revenue, the finance ministry stated that it has been rationalised and adjusted to maintain the estimated domestic revenue.

The ministry revised the capital expenditure upward to Nu 41.79B for this fiscal year, an increase of nine percent against the approved budget due to incorporation of external funded projects amounting to Nu 3.2B.

As of December 2021, Nu 10.56B which is 25.3 percent of the revised total capital expenditure has been spent.

Bhutan has received grants amounting to Nu 9.03B as of December last year of which Nu 1.65B was received as  programme grants and Nu 7.12B as project tied assistance.

Since the domestic revenue is limited, the fiscal deficit has to be financed through domestic markets as borrowings from external sources from Asian Development Bank, European Union, Austria, United Nations, World Health Organisation, World Bank, and others.

The fiscal deficit is expected to further increase to 9.9 percent of the GDP as the ministry has revised the budgetary grants from Nu 21.71B to Nu 16.29B on assumption that only 75 percent will be realised this fiscal year.

However, if the capital budget utilisation is estimated at 80 percent considering the setback of the lockdowns and past trends, the fiscal deficit is expected to be around 9.7 percent.

For the next fiscal year 2022-23, the ministry estimated a domestic revenue of Nu 36.37B of which tax revenue constitutes 69 percent (Nu 24.93B) and non-tax revenue constitutes 31 percent (Nu 11.44B).

Similarly, for the next fiscal year, total grants of Nu 11.46B are estimated, which is the balance of revised committed grants for the 12th Plan.