Govt plans to pass full budget till June 2024 and come up with big projects with foreign loans to deal with GDP transition dip in 2023

Opposition not keen about full budget till 2024

One of the undesirable features of the Bhutanese electoral cycle every five years is that there is a massive dip in the GDP growth rate as a full budget cannot be passed, major new works don’t happen, an interim government takes over for around three months and a new government takes time to settle in to finalize the five-year plan (FYP).

This is why in 2013 the GDP dipped to a low of 2.1% with another major dip in 2018 at 3.2%.

A major concern is that Bhutan can ill afford another such dip in late 2023 and early 2024 especially as the economy was in dire straits in 2020 and 2021 due to the pandemic with recovery starting to happen in 2022 only.

What complicates matters even more this time is that the 12th plan ends in 30 June 2023 and the current government will technically have 4 months of the 13th plan till October followed by another three months of an interim government.

Passing the Budget till June 2024

Lyonchhen Dasho (Dr) Lotay Tshering said, “I said from before that every five years when there is a change in government there is a dip in the economy. That is very bad and easily preventable.”

The PM said that in the 2023-24 budget they have instructed the Ministry of Finance to prepare the budget to avoid, prevent or minimize the dip. The budget is expected to come to the cabinet soon for discussions.

Lyonchhen said there is no clear law forbidding it, and it is only understood that newer activities be approved during one’s tenure.

“The biggest issue is the tenure of the five-year plan as the 12th FYP ends in June 2023 and our tenure ends in October 2023,” said the PM.

He said once the tenure ends there will be three months of interim government and then when a new government comes they will take another six to seven months, and if they get to come back maybe a few days because it will just be picking up from where they left.

He said at this rate an economic slowdown is going to happen.

“A lot will depend on the summer budget discussion. When we discuss the budget if we can pass one full year budget costing around Nu 75 to 80 bn which is a normal year’s budget with 55 to 45 ratio of recurrent and capital then it should prevent the dip,” said Lyonchhen.

He said the economy is going in a downturn and though it is not in a crisis there is a potential. He also said that though it is not written anywhere they have no assumed authority beyond October.

Big projects coming with foreign currency loans and grants

A big dilemma for the government to spend more money to boost the economy is that it will immediately impact the reserves with imports, and so a solution the government is working on is seeking foreign currency loans for major productive projects.

The PM said there will be some big projects coming, but in what sectors are under discussion. He said without extra investment the economy can never pick up.

“During hard times playing with Ngultrum does not change the face of the economy. We must inject foreign currency into the Bhutanese economy and then Bhutanese currency into the local market,” said the PM.

“We are looking at foreign borrowing not in terms of numbers but the quality aspect and source of borrowing and area of investment.”

He said the overall 12th plan target for the fiscal deficit was 2 to 3% but this time after the pandemic it has gone up to 5 and 6%.

The government will see how much budget they can pass in the next year and then they will calculate the final fiscal deficit.

He said they have always been functioning on a budget deficit and while the budget deficit is unavoidable what is more important is the quality of deficit.

“For the little extra we borrow we must invest it wisely and if are not able to invest wisely then better not to spend. There must be clarity on Return on Investment. These are the themes of not only the upcoming 2023-24 budget, but henceforth.”

One big ticket sector for expenditure will be the energy sector in terms of hydro projects and renewable energy. Another softer component is education which includes skilling and is already happening at a massive level with Dessung Skilling Program (DSP). 

The PM said the big projects will come in the 13th plan which starts in July 2023.

Lyonchhen said in his discussions with the Indian Foreign Secretary he said that while other donors would stick to the plan period, India could consider pumping its money in the gap between the two plan periods as the FYP plan system is less relevant.

He said the Foreign Secretary said that they are open to anything.

If this works out, the plan is to get Indian grant assistance for projects after the 12th plan ends in June 2023.

One more thing the government is counting on is that revenue is picking up quite well and as of mid-January it is improving significantly.

FYP is not relevant anymore

“I have been saying it since 2019 that the five-year planning is not relevant anymore. There is no formal discussion with the opposition yet but they know the issue well and we are all working for a country called Bhutan,” said Lyonchhen.

“Once the budget comes from MoF we will discuss and if it has any benefit we will share it with the Opposition. If we can pass the budget for one full year then at least it will minimize a lot of issues depending on cooperation from the Parliament.”

He said fallacy of the governance and planning system is coming out very clearly.

“The reasons why we are not able to progress, the blame that the public has been pelting against the government of there being no continuity is coming out more glaringly as we are finishing our five-year term.”

“The five yearly planning system is fallacious as every five years there is an interval three months that adds up.”

The PM has asked 13th plan drafters to see how they can undo this.

He said there will be a five-year tenure of the elected government but it need not be the calendar year.

“So if we can have a five-year term but that government approves plan for five months well into the fourth government. That should be perfectly fine as any government needs four to five months to start off and they also get to plan for five full years because the remaining six to seven months or ten months will be in the fifth government’s tenure.”

He said that way they can always tide over the gap between the five years.

The PM said this is something that has to go to Parliament and requires the consent and consensus of the Opposition and Upper House.

Opposition says Govt cannot spend beyond October 2023

The Opposition leader Dorji Wangdi said while the 12th plan ends in June 2023 the government should get full budget till October 2023 when its tenure ends.

“And after that I don’t think the government has many mandate to spend as a government has a fixed period. This exactly what we did in the second government when we passed the capital budget for critical activities only and the recurrent budget had to be passed,” said the OL.

The OL said that while they will be discussing the budget in May 2023, he said the dip has been occurring less due to the budget and mainly due to civil servants being deployed for electoral duties.

“Even if there is budget there are no civil servants. The whole civil servants are deployed in election duty from the NC election onwards and so there is a halt in development,” said the OL.

He said things can be improved with things like dealing with contractors and how offices manage developmental programs.

The OL said that in the future they should make five year plans corresponding to term of the government.

He said the measure to tackle the dip in economy has to be a combination of management of civil servants and the budget.

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