Bhutan’s over­all GDP de­clines in the past four years

Al­though public fi­nan­cial man­age­ment im­proved over the past six years

Business Bhutan - - Economic - Pema Sel­don from Thim­phu

Al­though Bhutan has im­proved its public fi­nan­cial man­age­ment (PFM) con­sid­er­ably over the past six years, the do­mes­tic rev­enue to Gross Do­mes­tic Prod­uct (GDP) has de­clined be­tween 2011 and 2015, ac­cord­ing to a new re­port re­leased jointly by the gov­ern­ment and the World Bank.

The Public Fi­nan­cial Man­age­ment Per­for­mance Re­port 2016 states that GDP fell from 22.3% to 19.9% be­tween 2011-12 and 2014 -15 fis­cal years.

The over­all bal­ance showed a de­cline from 14.6% of GDP in 201112 to -11.4% in 2014-15. Si­mul­ta­ne­ously, the in­flow of grants also de­clined from 13.5% to 9.2% of GDP.

The to­tal ex­pen­di­ture also de­clined along with rev­enue fall­ing from 36.9% of GDP to 31.4%. Some sav­ings was made on cur­rent ex­pen­di­ture (down from 18.3% to 17.6% of GDP) but a sig­nif­i­cant part of this fall in rev­enue has been ab­sorbed by a cor­re­spond­ing fall in cap­i­tal ex­pen­di­ture from 19.9% to 15.1% of GDP.

In terms of per­cent­age to GDP, the do­mes­tic rev­enue is ex­pected to be about 17% of the GDP at the end of the 11th Five Year Plan (FYP) (FY 2017/18). Since hy­dropower is the main source of rev­enue and with com­mis­sion­ing of the new mega hy­dropower projects in 2017-18, a ma­jor in­crease in rev­enue is ex­pected the year.

To­tal public debt is pro­jected to in­crease to 111% of GDP in 2017/18 fis­cal year. Hy­dropower debt con­sti­tutes a ma­jor part of the public debt, which is ex­pected to be about 90% of GDP in 2017/18 fis­cal year. How­ever, ex­port earn­ings are ex­pected to up start­ing late 2018 with the com­mis­sion­ing of the Pu­natsangchhu –II (1,020 MW) and Mangdechhu hy­dropower projects (720 MW) fol­lowed by Pu­natsangchhu I project (1,200 MW) in 2019.

The fis­cal bal­ance is pro­jected to be in sur­plus at 2.7% of GDP in 2017/18 fis­cal year. This is mainly due to ex­pected in­crease in rev­enue from hy­dropower and the com­mis­sion­ing of new hy­dropower projects.

The re­port points out that though the medium-term out­look is pos­i­tive, macroe­co­nomic pres­sures on do­mes­tic de­mand will have to be man­aged as Bhutan nears the com­mis­sion­ing dates of the three megahy­dropower projects un­der con­struc­tion.

How­ever, the im­pact of the on­go­ing re­bal­anc­ing in global mar­kets on Bhutan’s econ­omy is ex­pected to re­main mod­er­ate.

“These ef­fects will be from less­ened tourism earn­ings and a slow­down in new hy­dropower project ap­provals. While debt risk is still mod­er­ate, the rapid build-up over re­cent years calls for cau­tion,” the re­port states.

It fur­ther states that Bhutan’s debt-car­ry­ing ca­pac­ity will im­prove in the long run, re­flect­ing sig­nif­i­cantly higher elec­tric­ity ex­ports when hy­dropower projects come on­line.

The re­port analy­ses the coun­try’s PFM through 31 in­ter­na­tion­ally en­dorsed in­di­ca­tors. It has found im­prove­ment in ar­eas such as bud­get cred­i­bil­ity, over­sight of public sec­tor en­ti­ties and in­di­ca­tors re­lated to rev­enue, com­pared to the last as­sess­ment con­ducted in 2010. This means im­proved man­age­ment, al­lo­ca­tion, and dis­tri­bu­tion of public funds to sup­port the peo­ple of Bhutan.

To sus­tain and deepen these achieve­ments, Bhutan faces chal­lenges in the short to medium term, large macroe­co­nomic im­bal­ances, which trans­late into a twin deficit - a large fis­cal gap and a large cur­rent ac­count deficit.

“While the public sec­tor is the pre­ferred em­ployer, pri­vate-sec­tor devel­op­ment will be nec­es­sary for sus­tain­able growth and job cre­ation,” states the re­port.

The re­port points out that re­forms need to fo­cus on ar­eas such as ex­pen­di­ture com­po­si­tion out-turn, con­trols over pay­roll, ex­pen­di­ture ar­rears and public ac­cess to in­for­ma­tion through strength­en­ing the public ex­pen­di­ture man­age­ment sys­tem and re­lated IT sys­tems.

“The 2016 as­sess­ment pro­vides a strong ba­sis for us to un­der­take the next level of re­forms to fur­ther strengthen the PFM for en­sur­ing proper ac­count­abil­ity in the use of public re­sources with econ­omy and ef­fi­ciency for achiev­ing the en­vis­aged goals of the 11th FYP be­sides pro­mot­ing good gov­er­nance,” said Fi­nance Sec­re­tary, Nim Dorji.

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