Bhutan Economic Stabilization Fund stands at Nu 167 mn

The Bhutan Economic Stabilization Fund was established with the objective to maintain a fiscal rule to ensure macroeconomic stability of the country.

The fund was started with a capital injection of Nu 100 mn as seed money during the 11th FYP and with the recent capital transfer of Nu 67 mn by the Ministry of Finance to the fund account, the total amount stands at Nu 167 mn as of today.

A stabilization fund is a mechanism set to insulate the domestic economy from economic shocks, with the primary motive of maintaining a steady level of government revenue in the face of major commodity price fluctuations

The feasibility study of the establishment of the fund, coordinated by the Gross National Happiness Commission started as early as July 2012 after an executive order was issued by the cabinet.

The need for such fund also came in line after the World Bank, in the past, advised the government of the need for alternative rules that delink fiscal policy from volatility of hydro revenues, proposing the adoption of a medium-term balanced budget rule with excess resources placed in a separate account that has clear rules on its use and a strong governance mechanism to prevent the financing of recurrent expenditure.

The fund is managed by the Royal Monetary Authority which also has the responsibility to keep the Ministry of Finance in the loop on the investment avenues explored by the central bank from the fund.

A strong institutional framework has been identified as the main key in managing stabilization funds and their resources. The Royal Charter has been submitted for the approval from the throne and clear guidelines will be framed accordingly.

An official from the Royal Monetary Authority said that Nu 100 mn of the total fund has been invested under the fixed deposit scheme with an Indian bank for a period of one year, although the interest rate wasn’t disclosed.

Tshering Tashi from the Ministry of finance said the main priority of the central bank is not to make profit by exploring different investment avenues but to ensure that the funds deposited from time to time by the government do not remain idle.

Studies have shown that stabilization funds contribute to smoothing government expenditure. Expenditure volatility in countries with stabilization funds can be 10-15 percent lower than that in economies without them.

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