Living beyond our means

The rate of growth of current expenditure is outstripping that of domestic revenue 

Notice: Causing concern for the government, the country’s annual current expenditure is increasing at a rate much faster than that of the annual growth in domestic revenue.

“If this trend continues, it’ll be difficult to meet the current expenditure from financial resources as required by section 6 of article 14 of the Constitution,” finance secretary Lam Dorji said, in issuing a budget call notice for the year 2015-16.  The Constitution prescribes that the government should ensure that the cost of recurrent expenditures be met from internal resources.

The annual domestic revenue is projected to increase by 12.5 percent in the current fiscal year from 3.6 percent last year.  However, the current expenditure is estimated to grow by 14 percent, which is still higher than that of domestic revenue.  And, according to the notification, this trend has been continuing over the years.

In an ideal situation, the rate of growth in domestic revenue should be equal to that of current expenditure, if not higher.

So far, the country has been able to adequately cover its current expenditure from internal resources.  Domestic revenue for the current fiscal year is projected to be Nu 24.599B, and current expenditure is estimated to be Nu 21.895B.

The national budget report 2014-15 identifies the provision of Nu 1.8B kept for salary revision of public servants as an important factor.  With the salary revision, the expenditure on pay and allowances constitutes about 46 percent of total current expenditure.

The current budget also includes interest payments and subsidies.

To close the widening gap between the rates of increase in revenue and recurrent expenditure, the finance secretary has asked budgetary agencies to keep their budget requirements within the ceiling provided, and align with annual performance agreement targets. “Budget officials of the agencies must ensure that the budget proposals are reviewed, discussed with their head of agencies thoroughly, and the proposals are complete in all aspects, and approved by the minister, in case of ministries.”

On an average, the revenue collection trend has been increasing over the past four years at 10.5 percent.  However, the recent setback in the economy, due to adverse balance of payment situation, and the government restrictions on selected imports, has negatively affected the average growth rate of domestic revenue.

The increase in projected revenue for the current fiscal year has taken into account the expected revenue from the commissioning of the Dungsam Cement corporation limited (DCCL), Dagachu hydropower project, and revised energy tariff of Chukha hydropower plant.

The increasing cost of maintenance of the public infrastructure developed in the past, establishment cost of new departments, and new expenses on internal transport and cost of the school feeding program have also been cited as the reasons for the increase in current expenditure.

According to the budget report, domestic revenue is further expected to take a downward trend.  Tax revenue is likely to be revised downward at the close of the current fiscal year due to fall in corporate income tax.

However, the projected increase in business income tax and personal income tax, based on actual collection trend, may offset the projected fall in corporate income tax.

Through the notice, the finance ministry has said that, while submitting budget proposals, budgetary agencies should provide a narrative policy statement, highlighting the programme targets at the ministry or sector level, to deepen the linkages between the proposed budget and targets to be achieved, as per annual performance agreements.

“Budgetary agencies should consider the implementation capacity and other constraints during the formation of the budgets. The issue of underutilisation is also being viewed very seriously by the oversight bodies and the heads of concerned agencies will be accountable,” states the notification. “Persistent underutilisation of budgets may also affect subsequent years’ budget allocation,” the notification states.

 

By MB Subba

 

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