The biggest source of worry in the 2022-23 budget report is the biggest ever fiscal deficit of Nu 22.882 billion (bn) at 11.25 percent of GDP.
To add to this there was another record fiscal deficit in the 2021-2022 budget of 17.498 bn.
With most of the above fiscal deficits financed or to be financed through domestic borrowing, the concern is on how the government will tackle such record deficits.
The first big problem is the Nu 17 bn fiscal deficit of the previous year and of this Nu 14 bn of Treasury Bills will have to be paid back or renewed with domestic Financial Institutions by July, August and September 2022.
Here Finance Minister Namgay Tshering said, “It does not mean we do not have money but disbursement was delayed be it external concessional borrowing inflow or grant inflow. That was mainly resorted to meet the financing. We don’t want to lose time waiting for the money. It will mainly be refunded from that disbursement.”
He said that the remaining amount that cannot be refunded via these T-Bills will be converted into long term bonds.
He said, “The last financial year’s projected fiscal deficit was 17 bn but now if you look at the current status towards the end of this month the deficit conventionally comes down because implementation does not happen at 100 percent.”
Talking about the future Nu 22 bn deficit and concerns on if government borrowing from local banks will squeeze or crowd out the private sector, he said to fund the deficit, they don’t borrow in one go, but always stagger the borrowing.
“We always prioritize that first we use the money from the available grant money. We consistently pursue with our donors and developmental partners that the grant inflow is on a timely basis so that we need not have to borrow,” said Lyonpo.
He said overcrowding is not there and if one checks with the Financial Institutions on the current state of the liquidity it is actually surpassing. He said it is a basically a liability on the banks to have accumulation of liquidity with them.
Lyonpo, however, said that to reduce the deficit the government can get additional grants and to reduce pressure on domestic borrowing it can engage in concessional foreign borrowing.
“What we have indicated in the budget report is that we are majorly resorting from the domestic market for borrowing but this is going to reverse. We will try to look for more grants firstly and secondly we will try to look for highly concessional borrowings from outside,” said Lyonpo.
Lyonpo said there should be a balancing act. He said if the credit trend in the local market picks up then as an import driven economy as any investment that we make entails some import, but we also need to have a foreign currency reserve for that.
“The government also needs fulfill the balance of payment obligations and so in the absence of tourism how do you replenish that? It has to be through grants, encouraging people to remit more and highly concessional borrowings from multilateral developmental banks. So we don’t meet the balance of payments all this liquidity parked with the banks will be a dead asset that cannot be used,” said Lyonpo.
Lyonpo said the actual deficit will be much lower. He said there will be some ad-hoc grant flows during the fiscal year from places like the European Union and here and there.
In the case of GoI they are pursuing on the timely disbursement of committed grants.
The MoF said that in keeping with Section 154 of the RMA Act of Bhutan 2010, the Ministry of Finance always seeks the vetting of the RMA on the Budget Estimates (for FY 2022-23) on the fiscal deficit financing to ensure Government borrowings don’t crowd out lending of the private sector.
It said government borrowings are mostly against the statutory reserve requirements such as Statutory Liquidity Requirement (SLR) and Cash Reserve Ratio (CRR) which the Banks keep as safeguards on their lending, with the Central Bank RMA.