Government initiatives to address fiscal challenges through SOE reforms

During the National Assembly session held on 2 October, the Finance Minister, Namgay Tshering, unveiled a series of transformative measures aimed at reshaping the State-Owned Enterprises (SOE).

To tackle the issue of soaring financial deficits, the government has initiated a rationalization process for subsidies and equity provided to SOEs.

The Ministry of Finance (MoF) has rationalized subsidies to the SOEs as Nu 836.7 million (mn) for the year 2023-2024 which is a 26.62 percent decrease from the previous year figure of Nu 1,140.98 mn.

This involves a thorough examination of the financial assistance extended to SOEs, and to ensure it aligns with their performance and social objectives. The objective is to optimize these resources, thereby, achieving improved financial management and easing the fiscal burden.

According to MoF, the ministry is actively collaborating with external experts to conduct comprehensive assessments of SOEs. The overarching goal is to transform the entities into valuable national assets in the long term.

In response to the growing fiscal deficits and mounting national debt, the government plans to take proactive measures to evaluate the performance of SOEs and implement strategies to enhance fiscal stability. These endeavors aim not only to reduce financial shortfalls but also to ensure the long-term efficiency and effectiveness of these enterprises.

The evaluations also aim to enhance operational efficiency by restructuring the business models of SOEs. A notable instance of this approach is the recent transformation of the Bhutan Livestock Development Corporation (BLDC) into a dealership, signifying a move toward increased economic dynamism.

As part of cost-saving strategies, MoF has initiated a series of mergers and acquisitions involving existing SOEs.

For example, the integration of the Royal Bhutan Helicopter Service (RBHS) into the Drukair Corporation is driven by strategic alignment.

Similarly, the government has endorsed the amalgamation of the National CSI Development Bank Limited (NCSIDBL) with the Bhutan Development Bank Limited (BDBL) to bolster BDBL’s lending capacity, particularly in rural areas.

These consolidations aim to reduce corporate governance and management costs while also capitalizing on synergies. Importantly, they guarantee the safeguarding of the interests of shareholders, customers, employees, and other stakeholders.

Initially established to fulfil commercial and social policy roles, not addressed by the private sector, SOEs are now being reevaluated in light of Bhutan’s evolving economic landscape.

MoF is exploring privatization options for non-strategic SOEs, seeking to engage the private sector in commercial activities.

Additionally, the government is actively exploring innovative financing mechanisms, such as Public-Private Partnerships (PPPs). PPPs are expected to leverage private sector expertise, enhance government performance, and alleviate the financial burden on the national budget, especially in the financing of critical social infrastructure projects.

The minister said these comprehensive measures underscore the government’s unwavering commitment to addressing fiscal challenges while ensuring the long-term sustainability and efficiency of the 13 SOEs under the purview of MoF.

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