The Bhutanese Leading the way.
The Gross National Happiness Commission (GNHC) along with the Ministry of Finance (MoF) is currently in the midst of reworking the revenue figures for the 12th plan which had earlier been projected at Nu 251 bn out of a plan size of Nu 300 bn.
The GNHC Secretary Thinley Namgyel, confirmed to The Bhutanese that the 12th plan’s revenue projections have been affected by the delay of the Punatsangchu I and II and also the Goods and Services Tax (GST) of India.
The bulk of the Nu 251 bn revenue was supposed to come when P II was scheduled to be completed by December 2018 and P I was supposed to be done by June 2019. However, a right bank slip and rectification measures could push P I well into the first few month of 2022 when the 12th plan is ending and the P II due to a cavern collapse to around end of 2019.
The role of hydro was so important in the 12th plan revenue calculation that it was estimated that the first two years of the 12th plan would have budget deficits until the three projects including Mangdechu came online.
The GST impact due to the non levy and non refund of excise duty from India will mean Nu 14 bn in revenue no longer coming in the 12th plan.
Given the earlier huge projected revenue of the 12th plan it was supposed to lead to a Nu 5 bn extra surplus. That would now become a fiscal deficit with the above changes.
The Secretary said that the only way is to now narrow the fiscal deficit gap is either by seeking more grant or by cutting down current expenditure or a combination of both.
When it comes to grant in the earlier 12th plan projection it had come down to Nu 54 bn compared to Nu 68 bn in the 11th plan. This was due to both larger projected revenue flows combined with donors pulling out as Bhutan’s goes up the socio economic ladder.
Donors in the 11th plan like the Swiss, Denmark and Netherlands will no longer be there in the 12th plan as bilateral donors.
With less revenue now projected to come in Bhutan needs much more grant than Nu 54 bn projected earlier. This because the earlier projected internal revenue would have financed around Nu 66 bn of the 115 bn capital expenditure which is expenditure for capital assets like building schools, roads, hospitals etc.
Another issue is also with so many donors not coming for the 12th plan Bhutan will have to depend more than ever on the big three bilateral grant donors of India, Japan and the European Union. More grants will also have to be sought from multilateral agencies like the United Nations, World Bank, Asian Development Bank, Global Environment Fund etc.
The GNHC secretary said that the Commission has not yet met and discussed the grant requirements from the respective countries and agencies. He said that would only happen by next year once the first complete draft of the 12th plan is ready by the end of the year.
He said that when it comes to grants it is up to the countries and institutions to decide how much to commit against Bhutan’s requirements.
A Foreign Ministry official on the condition of anonymity said that the donor countries like to reveal the committed figures only towards the end since they have to consult their own governments and they also usually reveal their commitment only at the end.
With the projected revenues drastically down the GNHC will also have the headache of sitting down with the Ministry of Finance and other stakeholders in the government of looking at cutting back on current expenditure for the 12th plan, which usually entails travel, stationery, maintenance costs, fuel etc used to run an office or maintain roads, schools etc. The current expenditure in the 12th plan was projected around Nu 185 bn.
What compounds the matter is that the Bhutan is set to graduate from the Least Developed Country status in 2020 which is in the middle of the 12th plan. This would make Bhutan ineligible for several financial facilities, programs and waivers that LDC countries are eligible. It would also make the cost of participation in international bodies like the UN more expensive with no LDC waiver.
Bhutan is trying to delay this graduation process given how everything essentially hangs on the completion of the ongoing hydro projects which is still a long way off combined with various uncertainties. This makes Bhutan still economically vulnerable which is one of the indicators of the LDC graduation status.
The cabinet on 26th December 2016 had approved the final guidelines for the 12th five year plan which had also given the previous financial projects that will all have to be reworked.
The MoF is still working on the revised and reduced revenue projections after which GNHC will have to explore the grant figures and possibilities.
