Bhutan’s overall GDP declines in the past four years
Although public financial management improved over the past six years
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.