PM says MoF SOEs will get a hike despite it not being budgeted

Earlier Acting Finance Secretary said no money in the budget for SOEs hike

Two weeks ago this paper carried a story quoting the Acting Finance Secretary Leki Wangmo saying there are no resources within the government’s finance to accommodate a 50 percent (pay hike) subsidy to any Ministry of Finance (MoF) State Owned Enterprises (SOEs), the annual budget has no provision for it and that only those SOEs who can afford it should give a hike.

The paper asked her at the time if a few adjustments could later be made in the budget to pay the SOEs if they request the political government who then agrees.

The Secretary had replied saying nothing can be adjusted from the budget as it is very tight, everything is earmarked and even some of the projects that the government wanted to do will only happen if there is financing, otherwise there is no fiscal space.

When it comes to the numbers and the facts the annual budget report proves the Acting Finance Secretary is correct in her statements.

The Budget Report shows there was no initial plan for a SOE pay hike on the lines of the civil service otherwise it would have enhanced the subsides to SOEs, but instead they were cut back.

In the past whenever a civil service hike was coming a lump sum amount would be kept in the budget that included the pay hike for civil servants and for SOEs too. The hike money to SOEs would be given as current subsidies. Such an amount was not kept for SOEs this time.

However, with under 3,000 SOE employees of 13 companies unhappy and an election looming only a few months away, the government is determined to give a pay hike to the SOEs, even if it is not budgeted, it means scraping the barrel and cutting back on expenses.

The Prime Minister Dasho (Dr) Lotay Tshering said, “The Acting Finance Secretary saying there is no money is right as we never had an abundant budget but we must spend where we have to spend.”

Given that a hike in the form of increased subsidies to SOEs is not budgeted in the budget passed by Parliament, the only avenue left for the government is to go for the supplementary budget route which is for expenses not budgeted in the budget.

The Prime Minister said that the subsidies to the SOEs for the hike will have to come via this route. “If some more subsidy is to be given with some rationalization, then since it is not built up the budget it has to go as a supplementary budget,” he said.

The PM pointed out that in the past there is a norm for salary revisions of SOEs which is they have always got when civil servants get it.  He said this norm has not changed and so the government will have to sit down and discuss.

“All SOEs are for the nation and is required for the system.  Most SOEs have a social mandate that needs to be seen. I am not talking about political mandate but social mandate like Kuensel, BBS, FMCL, BLDC, FCB etc who are offering public service to the public,” said the PM

“So whether we have money or not where we need to spend we have to spend. There is no different stand that we have taken,” he added.

He said where there is heavy social mandate there is no second way of doing it.

“They have to be given a social mandate, they have to bear the social mandate and not paying them accordingly does not make sense,” said the PM.

He said there are some SOEs which hardly have any social mandate as their mandate is to do business and make profits, and so their salary hike will be deducted from the profit and they will give the government less profit.

Giving the example of DHI he said every time there is a salary increment there is an increment for DHI and because they are a profit making business they are able to give the hike, and ultimately it will mostly be taken from what dividends they give to the government.

However, despite the assurances, the problem of a tight fiscal space and no money in the budget for a SOE hike remains.

Here the PM said, “The answer is not so straight forward. We can’t say we cannot give them and at the same time, we cannot say we will give the same hike like the Civil Service. So now we will have to sit down and discuss. Where needed we have to give because the social mandate is a part of governance.  The whole civil service is a social mandate.”

On how the hike would be given the PM said the salary increment will have to be given as a subsidy and legally it is a totally different structure.

Of the Nu 6 billion annual bill for the civil service pay hike around 4 bn is coming from Bitcoins and the government revenue can afford only around 2 bn.

The PM said, “We have to adjust from the domestic revenue. Now if pay hike is important then we have to rationalize the domestic revenue usage. They should get and it may be same like the civil service or it may may be more or less. All SOEs are different based on their efficiency. We don’t need to say it as the Board of Directors will decide.”

The PM said that in principle they are called SOEs but they are like any other government agencies. “Just because they are named as SOEs, it does not mean we can cut them off,” the PM added.

When asked about the recommendation of the Economic and Finance Committee of the National Assembly to shut down or privatize four SOEs the PM said he is not aware about the EFC statement.

In terms of the ongoing reforms in the MoF SOEs he said there is no immediate hard core action.

“We don’t have to have any immediate decision and we have to keep on improving. If it is about making SOEs, government agencies, or individuals more efficient and that is something we all should be doing and it is the main aim of the reforms. The government has not reviewed all the SOEs and seen which one to cut,” said the PM

The PM said that reforming SOEs due to no budget is absolutely wrong.

Even if the government plans to go the supplementary budget route to give a hike to the MoF SOEs, the main issue is that even additional or unbudgeted expenses need revenue or money to pay for them.

Revenue will be difficult given the tight economic situation and the PM has indicated that current expenses will be cut back. However, cutting back will be tough in a tight budget like this where everything is budgeted.

The 2023-24 budget shows that there is only Nu 46.245 bn in domestic revenue (including DHI’s 4 bn from sale of Bitcoins for the payhike) and the current expenditure is Nu 45.549 bn. Since all current expenditure which includes salary has to be funded from domestic revenue it only leaves Nu 696 mn extra.

One option open to the government is to go in for domestic borrowing through short term Treasury Bills or longer term Bonds put that money in the consolidated fund and then issue it as current subsidies to SOEs.

However, here a finance expert, on the condition of anonymity, said that it would be fiscally irresponsible to borrow money to give a pay hike.

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