New framework will assess project delivery, budget execution and compliance with government rules.
TIL BDR GHALLEY | Thimphu
Dzongkhags and thromdes will have to meet their development targets, maintain timely budget spending and comply with government rules to secure the performance-linked portion of their capital grants under a new system introduced by the Ministry of Finance ( MoF).
The performance-based grant assessment framework, which starts in fiscal year 2026–27, links the performance of all dzongkhags and thromdes to the release of 30 percent of their annual capital block grant allocations for fiscal year 2027-28.
The framework replaces an approach where capital block grants were allocated largely on the basis of entitlement with a system that also considers how effectively local governments plan, implement and account for the use of public funds.
The first year of implementation, fiscal year 2026–27, will establish the baseline for the new system.
Local governments will be assessed against 100 points, with their score divided across three areas: delivery of planned activities, financial management and compliance with government policies.
Whether planned activities are completed will carry the largest share of the assessment, accounting for 50 of the 100 points.
The assessment will focus on annual key performance indicators (kpis), including annual key delivery (akd) targets that local governments commit to achieving during the financial year.
The framework sets a strict requirement for completion. A target will only count as achieved when it has been fully completed within the financial year. Partially completed work will not receive points.
For example, a dzongkhag with 20 planned kpi targets that fully completes 14 would receive 35 out of 50 points.
The MoF will assess performance using annual work plans, activity registers, progress reports, physical verification records and records from the electronic public expenditure management system, or e-pems.
Financial management accounts for another 30 points.
The largest part of this section, worth 20 points, is based on how much of an approved budget has been spent by the end of the third quarter on 31 March.
To receive the full 20 points, a dzongkhag or thromde must have spent at least 60 percent of its approved budget by that date. Advances already paid out are included in the calculation.
The scoring will be based on the level of expenditure reached by March 31: Dzongkhags and Thromdes that spend 60 percent or more of their approved budget will receive 20 points, those that spend at least 50 percent but less than 60 percent will receive 10 points, while those with expenditure below 50 percent will receive no points
The framework also awards five points for timely entry of new activities and budget changes into the government’s multi-year roll-over budget (myrb) system.
New activities or changes to existing allocations must be entered by March 31. Activities entered after the deadline will not qualify for the points, except disaster-related activities arising after the third quarter.
The remaining five points are linked to the proper closure of completed projects in e-PEMS (Electronic Public Expenditure Management System).
A project that has been physically completed but still has unused budget formally sitting against it is treated as a closed work. The framework requires such budgets to be properly adjusted or closed in the financial system before the end of the financial year.
If even one activity has budget retained under closed works at the end of the financial year, the local government will receive zero out of five points for this component.
The ministry has designated e-pems as the main source of financial information for the assessment.
The final 20 points will depend on compliance with government policies, guidelines, notifications and regulations.
Assessors will examine whether local governments have followed the annual grant guidelines and other rules governing the use of public money.
A dzongkhag or thromde with no verified violations will receive all 20 points.
One verified violation will normally result in 10 points, although the score can fall to zero if the violation involves deliberate misuse of funds, a serious breach of regulations or significant financial consequences.
Two or more verified violations will result in zero points under the compliance component.
The framework also sets out 21 categories of prohibited expenditure and restricted activities.
These include construction or maintenance of archery and khuru bacho facilities, gates and compound fencing, designated residences and staff quarters, cafeterias and canteens, certain sports facilities, office rimdos and footpaths leading to individual households.
Grants also cannot be used for free distribution of CGI (Corrugated Galvanized Iron) sheets, geysers, household items and RNR (Renewable Natural Resources) inputs, donations, gifts and contributions unless authorised by law, prize money, cash support and free toolkits.
Overseas travel financed from annual grants is prohibited, as is procurement of vehicles, heavy machinery such as excavators and dozers, mobile phones and tablets.
The list also covers office statues and choeshams, purchases of shares and financial investments, and deposits into extra-budgetary accounts.
The framework prohibits misclassification of activities to disguise ineligible expenditure, preventing an expense from being recorded under another category to make it appear eligible.
The assessment will be conducted annually after the financial year closes, once year-end accounts and e-pems records have been finalised.
Dzongkhags and thromdes will receive their preliminary scores before the results are finalised and will have an opportunity to provide explanations and supporting documents.
A local government that disagrees with a preliminary finding can submit a formal representation to the MoF with documentary evidence. Once the final score is confirmed, it will be binding.
The system is intended to improve local government planning, budget execution, public service delivery, financial management, internal controls and accountability. Assessment results will also be shared with the royal civil service commission to support performance management.
For dzongkhags and thromdes, the new framework puts greater weight on what is delivered, when money is spent and how public funds are managed. Their performance during 2026–27 will determine the release of the performance-linked 30 percent of their capital block grants for 2027–28.
