The Bhutanese Leading the way.
If all went to plan on the hydropower front, Bhutan would have come closer to becoming a self sufficient economy during the course of the 12th five year plan (FYP) period.
But this has all gone ‘topsy turvy’ after the government received a recent report in February 2017 where of the three main hydropower projects the 1,200 MW Punatsangchu I scheduled to be completed on July 2019 would be delayed to December 2022 and 1,020 MW Punatsangchu II scheduled to be completed by December 2018 would be delayed to September 2019 (see main story).
Based on preliminary fiscal projections of December 2016 (before the February 2017 delay report) Bhutan would have had a Nu 5 bn surplus for the larger Nu 300 bn 12th FYP compared to the overall fiscal deficit of Nu 19.8 bn for the smaller Nu 215 bn 11th FYP, if all three projects including the 720 MW Mangdechu got completed on time.
If the three projects were completed on time it was expected to play a huge role in doubling domestic revenues to Nu 251 bn in the 12th plan up from Nu 129 bn in the 11th plan.
It was estimated that first two years of the 12th FYP will see some fiscal deficit as the three ongoing mega hydro projects will take some time for completion. However, with two of the three projects getting delayed the fiscal deficit would run into more years upsetting the Nu 5 bn surplus.
Instead there is now a real possibility of the 12th FYP having a fiscal deficit too.
A fiscal deficit is when the total expenditure of the government cannot be matched by it its revenue. The shortage is usually overcome by taking loans which becomes debt.
Coverage of current expenditure by domestic revenue was projected to be 135 per cent, a 10.2 per cent increase over the 11th plan but this will also change now.
Similarly, coverage of total expenditure including capital expenditure by domestic revenue was expected to increase to 83.5 per cent, a 37.6 per cent increase over the 11th plan, but this would also be subject to change now.
What does not help is that the grant component of this bigger plan is coming down to Nu 54 bn in the 12th FYP from Nu 68 bn in the 11th FYP as donors pull out.
The cabinet on 26th December 2016 approved the final guidelines for the 12th five year plan.
Of the Nu 300 bn 12th FYP Nu 185 bn is for current expenditure like salaries, office running expenses, maintenance etc while Nu 115 bn is for capital expenditure like constructing new assets like roads, schools, hospitals etc.
The 12 FYP has a much larger current expenditure component, 75 percent more than the 11th plan, than past plans compared to a just 5 percent increase for capital expenditure.
This at one level means that a large amount of socio-economic infrastructure has already been built and secondly to bring in discipline and manage uncontrolled capital investments that would build future current expenditure pressure on the state.
The plan guidelines say that while domestic revenues are expected to increase current expenditures are also expected to increase significantly in the 12th FYP.
It says that in the coming years, while the increase in current expenditures would follow the same trend, increase in domestic revenues may not follow the trend until new hydroelectricity projects are commissioned.
However, given the delay in the two projects the expected increases in revenue in the 12th FYP is also getting delayed and may end up affecting the entire plan size of Nu 300 bn.
Therefore, rationalizing and managing government expenditures would be critical in the 12th FYP. Also, during the consultative meetings, many stakeholders had expressed concern on rising public debts and the need to consolidate rather than expand in the 12th FYP. Accordingly, the capital expenditure in the 12th FYP is projected at Nu 115 bn which also factors in inflation.
Of 115 bn capital expenditure Nu 50 bn is for central agencies, Nu 50 bn for local government (see separate story on pg 1) and Nu 15 bn for flagship programs (see separate story on pg 12)
Among central agencies of the Nu 50 bn capital expenditure the largest allocation is to the Ministry of Works and Human Settlement at Nu 10 bn. Similarly amounts are divided up among various other ministries and agencies.
