Prime Minister Lyonchhen Dr Lotay Tshering

COVID-19 Impact: Domestic Revenue to drop by Nu 10 bn in 2020-21 budget

Govt to slash recurrent expenditure by Nu 5 bn in 2020-21 budget except for pay and essential activities

With COVID-19 impacting all sectors of the economy the forecasted domestic revenue for the 2020-21 budget has dropped from an initial one of Nu 43 bn in the pre-COVID-19 time to now Nu 33 bn.

This drop of Nu 10 bn also shows the extent of the impact on all sectors of the economy.

The Finance Minister Lyonpo Namgay Tshering said the biggest source of revenue after Hydropower is Tourism and that is now zero. He said that the construction industry is also hit since while the contractors have jobs they do not have labour. He said that the Corporate Income Tax and Business Income Tax of all other allied sectors are hit and this would mean very minimal revenue.

“So from both a conservative and yet optimistic approach we feel the revenue for the 2020-21 budget will come down to Nu 33 bn,” said the minister.

An immediate hit of this reduced revenue is on the recurrent expenditure of the government.

The Prime Minister Dr Lotay Tshering pointed out that in the current situation the only option is to tighten one’s belt.

The Finance Minister said that when the initial budget call was done the government agencies proposed Nu 38 bn as recurrent expenditure for 2020-21 but with domestic revenue to be only around 33 bn that recurrent expenditure would have to be cut down to Nu 33 bn.

The PM said that some countries take international loan for the country’s recurrent budget and they are in deep trouble.  “Our Constitutional mandate under Article 14.6 says that the government must meet its recurrent budget from domestic revenue which means that ultimately you have to rely on yourself to feed yourself. It simply says that you cannot take loan from bank and buy Sabzi Bazar shopping,” said the PM.

“Since we are clearly short by 5 bn I immediately told the Finance Ministry nothing doing as you have to make the recurrent budget meet from the domestic revenue. So when we have to adjust Nu 5 bn we have to tighten our belts. So we have to cancel travel, we have to cancel some projects funded by RGoB and we have to initiate some local activities to generate profit so that companies will start paying CIT and businesses can start paying BIT,” added the PM.

The Finance Minister said in order to cut down the recurrent budget he, for the first time in history, personally sat across the table and screens with multiple government agencies to relook at their recurrent budget.

Lyonpo said that for the first time the recurrent budget would not be given under heads but it would be given as a block grant and the agencies would be responsible to prioritize.

He said that certain key activities like pay and allowances, utility, office running expenses, patient referral and essential services would not be impacted but others like TA/DA and others would be cut.

He said that in the digital age and with Digital Drukyul project people do not need to travel every time but can do monitoring and meetings using video conferencing and other digital tools.

Giving the example of his own ministry, he said usually various Dzongkhags and other agencies would travel to Thimphu for the budget but this time it was done on the screen.

Lyonpo said the cuts are also not purely due to budget, but certain activities that cannot anyhow be done due to the COVID-19 situation have also been cut- like trainings. Lyonpo said the approach is to optimize, consolidate and integrate.

The Finance Minister said while the current expenditure is being cut the capital budget will be comparatively larger at Nu 35.5 bn. He said last year (2019-20) the capital expenditure was only around Nu 27 bn. He said this increased capital allocation is due to the frontloading of activities of the 12th FYP.

However, the minister clarified that the budget above does not include the Nu 30 bn National Relief Fund which he said is different and out of the 12th plan.

Talking about the impact across all sector the Prime Minister said, “Going on to the whole economy the impact is understood but in terms of activities, farming in the villages is not being hampered. Those who are being hampered are being hampered due to general issues like no rainfall, irrigation waters and other issues but COVID-19 is not hampering them except maybe a little bit on electric fencing due to raw materials.”

He said the tourism industry was immediately hampered. As people could not move and schools were shut, it also affected everybody else.

“The biggest hit is that in-country travel by civil servants coming to around 800 mn a year was stopped. Nobody gets to keep the money as the money ultimately goes into the economy. The amount of civil servants that would have travelled from here to east with hotels in Bumthang, Trongsa and Mongar benefitting is not there anymore. The rush to have conferences and seminars in winter in Phuentsholing is not there,” said Lyonchhen.

“So all are affected and therefore there is no one magic bullet to solve this and so we have to keep strategizing and do whatever is possible so we revisited and revised the 12th plan quite a lot but we could not really concretize it because we don’t really know how COVID-19 will behave,” added the PM.

He said broadly they have to see what activities cannot be done and those they can do and are good to do and in the case of such activities it is preloaded. The PM said such activities are where social norms are okay, they don’t have to travel, be in groups, import raw materials or need foreign consultants, and so such activities are being reprioritized today.

He said the budget for activities that cannot be done now or likely cannot be done, has to be kept separately.

“Later on if the COVID-19 cloud clears we will identify economic activities, capital investment activities and reinvest. If the COVID-19 situation keeps getting worse then we have to use this money to feed our public in any way possible,” said Lyonchhen.

Highlighting the dire international situation, the PM said some countries are collapsing after the oil market went negative and many countries defaulted on international loans forget, about domestic support.

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