Expect big cuts in expenditure and reworking of the 12th plan too
The three-week national lockdown is not only having an impact on the private sector, but it is also playing havoc with government’s revenue target and hence its finances.
The Finance Minister Namgay Tshering said that the tax revenue target for the month of August is Nu 3.9 bn but due to the lockdown the government is only expecting Nu 820 mn in revenue.
The minister said with no economic activity happening the government would not be able to collect taxes and revenue.
This may be the reason why the government is floating around Nu 3 bn in Treasury Bills that Financial Institutions can buy for around three months.
The Finance Minister said that there would be similar revenue hits with future lockdowns and so the government is looking at various ways to supplement revenue and at the same time also cut back to save money.
He said that among other things the 12th plan will undergo major changes given the lockdown scenario with more focus in certain areas.
Lyonpo said that it was a time for bold decisions. He said the government is looking at short term, medium term and long term policy interventions.
He said the short term proposed policies would target the low hanging fruits. “We may need to resume and scale up our boulder exports along with mines and minerals to offset the loss from tourism,” said Lyonpo.
The minister said that in 2018, Bhutan’s Ferro Silicone industries spent Nu 2.6 bn in the import of charcoal. Lyonpo here said that local charcoal could be made from trees in the local forests.
“We have to have a rational mindset as we need to harness our forest timber as even some experts from the Forest Department say that we can thin our forests for their own health. During good times we can carry on but in these times some radical moves are needed,” said Lyonpo.
Lyonpo said that while the government revenue and economy is suffering, there were also certain positives from the lockdown.
The minister said that of the recurrent expenditure of Nu 32.9 bn this year around 16 percent is Operation and Maintenance like buying paper, utilities, maintenance etc. and with government offices shut there would be large savings in this area.
He said components of this like TA/DA had already been cut by 50 to 60 percent earlier and with the lockdown even the remaining budget is not being used.
Lyonpo said another bright side has been a sharp decline in fuel imports which is Bhutan’s biggest import item.
One area the government is looking to for stability in revenue generation is hydropower as this is the only sector of the economy that is COVID proof and so revenues here can be counted upon.
The minister said given the current lockdown and potential future ones the government would have no option but to rationalize its recurrent expenditure.
Lyonpo said that pay and allowances would not be hit, but he said that all kinds of scenarios are being planned for.
Lyonpo said one scenario that the MoF is looking at among others is a series of lockdowns one after the other and in that situation how it can be done to ensure that economic activities can continue within the health protocols.
“As we move forward in the second phase of the national lockdown it will be made lighter and we need to co-exist with the virus. In subsequent lockdowns the plan is to undertake economic activities in restricted areas like Pasakha with public health vigilance,” said the minister.
He said currently there are no such SOPs and guidelines which needs to be developed.
“We are proposing to the MoH Minister and the Prime Minister for a smart lockdown in the future where zones and and other parts of the country not impacted can go ahead,” said the FM.
He gave the example of Paro Dzongkhag where the minister is currently posted overseeing the lockdown there. Lyonpo said that though Paro had five cases of local transmission it was mainly imported from Phuentsholing.
He said the Dzongkhag was divided on the basis of risks into the core thromde, buffer zone and the gewogs with gewogs being allowed to get back to normal with limited activity in the buffer zone and the lockdown is still on in the thromde.
Lyonpo said that to deal with the economic fall out of the lockdowns, he and his team are looking at reworking the 12th plan, intervention in key sectors and various policy proposals.
He said a separate team under the Finance Secretary and the RMA Governor are looking at fiscal and monetary measures with respect to the lockdown to aid the economy.
Lyonpo said that his team is analyzing sectors of the economy on a case by case basis and looking at how each sector is impacted and what can be done to make them contribute to the economy. He said there are are sectors like industry, agriculture and services and he would see which are the hardest hit and what are the interventions that can be mapped out to rescue them.
“From the economic perspective of the MoF, at the end of the first lockdown, going forward, we have to learn to co-exist with the virus as the economy cannot take a huge hit and the government must come up with some bold decisions. This is my personal view,” said Lyonpo.
On the Thimphu front the minister said the proposal in the government is to ease the lockdown. He said the cabinet has also finalized the draft dzongkhag zoning system that is more innovative.
On the 12th plan the minister said that there will be some radical changes without compromising the key role of the government of injecting money into the economy.
“The government cannot afford not to spend,” said the minister.
He said that as the MoF they will build a broad skeletal framework for the plan and the GNHC will have to fill it in.
He said two areas that would receive high priority for example is mechanization and ICT.
Lyonpo pointed out that COVID-19 and the associated lockdowns would prevent the mass entry of labour and so it made sense to go into mechanization in a major way in the 12th plan.
He said another focus area would be ICT as a lot of work will have to be done using ICT.
Lyonpo said they would look into various priorities.
The minister said that areas he would be looking at are the external sector which is trade, manufacturing and hydro; fiscal sector which is the spending component; monetary sector which is money flow and inflation; and real sector which is agriculture.
The minister said that he would look at what is impacting growth and try to remove impediments and propose policy changes at the short term, medium term and long term level in these sectors.
He said while the short term policies can be implemented right away, medium term policy will need some assessment to make it concrete and longer term policies will be for the long run.
The minister said that as of now the annual budget has not undergone any change and agencies can manage from what is allocated to them. He said Nu 7 mn in contingency funds was recently allocated as funding for the three regional task forces in the south, east and west.
For people having difficulty earning a living he said that His Majesty’s Kidu is in place. Lyonpo said that major relief has already been provided in terms of doing away with the loan interest rates and the loan deferral.
The minister said that while the government cannot come between the people and the landlords on the issue of house rents it now depends on the generosity of landlords.
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