Record Nu 8.9 bn fiscal deficit expected for 2020-21 budget

While the official 12th plan is Nu 310 bn with a fiscal deficit of Nu 29 bn it is well known that the real deficit could be up to Nu 40 bn due to DNT’s various pledges outside the plan.

Fiscal deficit is the gap between the total resources available and the total expenditure of the government.

The result has been DNT scrambling to get funding for its various pledges in addition to getting funding and implementing the original Nu 310 bn plan.

The strains will eventually show and this will be apparent in the upcoming 2020-2021 financial year annual budget where the government has already calculated a deficit of Nu 8.9 bn.

In terms of amount this will be the largest fiscal deficit ever. However, in terms of percentage it would around 3.68 percent fiscal deficit of the nominal projected GDP of Nu 241.361 bn in 2020-21 financial year. This would be the third highest fiscal deficit if it does not go any higher.

While the government is saying that the fiscal deficit for 2020-21 financial year will be capped at Nu 8.9 bn the 2019-20 annual budget report predicts that the fiscal deficit will Nu 12.247 bn or 5.07 percent for 2020-21.

This means that the government may have cut back expenditure to get the Nu 8.9 bn deficit figure but it also leaves open the possibility of the deficit even going higher.

The Prime Minister said that this fiscal deficit would be the largest in the five years as this would be the time when the largest amount of the plan money coming to around 24 percent would be spent.

In addition to the 12th plan’s own deficit the deficit would also include the out of plan pledges of the government like the the Accelerated Mother and Child Healthcare Allowance costing Nu 1.8 bn over five years among others.

Since the advent of electoral democracy the largest fiscal deficit in terms of percentage was under DPT in the financial year 2012-13 with the actual deficit at 4.02 percent with a deficit amount of Nu 4.244 bn against a GDP of Nu 105.378 bn.

The second largest fiscal deficit of 3.77 percent was under PDP in the 2013-14 budget when there was a shortfall of 4.296 bn against a GDP of Nu 119.545 bn.

It is interesting that the highest fiscal deficit was in two financial years worst hit by the Rupee crisis and also during the last year of DPT’s tenure when there was slowdown in some grants and revenue that had to come from India, at the time.

The fiscal deficit in 2014-15 financial year radically improved to 1.5 percent with only Nu 1.896 bn shortfall. This was also when economic growth picked up after the Rupee crisis and there was a better inflow of funds and revenue as well as a much larger 11th plan started being implemented in a major way.

In the 2016-17 financial year the fiscal deficit again jumped to 3.42 percent with a shortfall of Nu 5.344 bn.

In 2017-18 financial year it came down sharply again to 0.3 percent which is the lowest ever with a shortfall of only Nu 545 mn.

In the 2018-19 financial year the fiscal deficit is projected at 1.96 percent with a shortfall of 3.775 bn. This projected figure may change once the final figure for this comes out in the 2020-21 budget.

In the 2019-20 budget, which is the current one, the projected fiscal deficit is 3.04 percent of GDP amounting to Nu. 6.578 bn in FY 2019-20. This deficit was supposed to financed primarily through external borrowing of Nu. 4.769 bn.

About Tenzing Lamsang

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