National Budget Under Scrutiny: Balancing Growth with Sustainability

PEMA TSHOMO
Thimphu

The National Assembly (NA) has recently concluded its review of the proposed national budget for the fiscal year 2024-2025.

The review, conducted by the Economic and Finance Committee, delved into various aspects of the budget, highlighting areas for potential improvement and offering recommendations to ensure the budget promotes sustainable and inclusive development.

The committee began by acknowledging the planned budgetary report with allocations of Nu 50.8 million for recurring expenditure and Nu 38.3 million for capital expenditure. However, a significant portion of the committee’s attention focused on specific areas requiring further consideration.

One key area of focus was the budgetary allocation for the Bhutan Food and Drug Authority (BFDA). The committee recognized the critical role the BFDA plays in facilitating trade by ensuring food safety standards are met.

However, they observed that the allocated budget might not be sufficient to equip the agency with the necessary infrastructure and human resources to effectively handle comprehensive testing and certification.

This, in turn experts say, could hinder the export of high-value crops, a vital component of the government’s plan to achieve a Nu 50 billion GDP contribution from the agriculture and livestock sectors.

On behalf of the Economic and Finance Committee (EFC) committee, the chairperson, Rinchen Wangdi, said, the committee recommended an additional Nu 140.2 million allocation to bolster the BFDA’s capacity.

“This would enable us to enhance laboratory facilities and certification services, ultimately promoting exports and reducing reliance on imports,” he said.

Further, the committee also closely examined the proposed budget for commercial farming initiatives under the Ministry of Agriculture and Livestock (MoAL). While they acknowledged the government’s goal of transitioning from subsistence farming to a more commercial model, they expressed concerns about the potential for past mistakes to be repeated.

The chairperson shared, “Previous attempts at commercial farming faced challenges due to a lack of well-defined production plans, inadequate marketing support, and limited monitoring and technical guidance.”

The committee emphasized the need for in-depth diagnostic studies to analyze past failures and identify areas for improvement. Additionally, they recommended the development of comprehensive production, processing, logistics, and marketing plans with clear roles and responsibilities for all stakeholders.

Moreover, the agriculture sector proposes to transform by shifting from subsistence to commercial farming. In the fiscal year 2024–2025, Nu 346.5 million is appropriated for the following commercial activities: Chirub Farming with Nu 324 million; commercial farming of asparagus, broccoli, chili, and beans with around Nu 15.5 million; and urban and peri-urban farming with Nu 7 million.

For Chirub Farm, the committee suggested a shift in the approach for a large-scale commercial venture. Rather than providing budgetary support from MoAL, they recommended providing equity injections directly to Bhutan Food Corporation Limited (FMCL).

The committee also reviewed the budget allocated for road development, recognizing its significance for economic progress and citizen well-being. Their observations highlighted a lack of transparency in resource allocation. While a significant portion of the budget was earmarked for road improvement and maintenance, the specific Dzongkhags and activities to be included remained unclear.

The committee urged the government to prioritize Dzongkhags with limited access to good-quality roads and double-lane infrastructure. They also recommended specifying locations and detailed activities for the Nu 867.38 million allocated for the development and maintenance of Dzongkhag roads.

Another critical area of analysis was the national budget’s projected fiscal deficit of 5.2 percent of the GDP. While the committee acknowledged the government’s desire to average the deficit to 3 percent over the 13th Five-Year Plan period, they expressed concern about the potential cost implications of a higher deficit in the first year.

The committee recommended running a lower deficit, possibly less than 3 percent of GDP, in the initial year of the plan period, gradually increasing it in subsequent years.

The committee also raised concerns about the historical underutilization of capital budgets. Studies have shown that around 20 percent of the capital budget goes unutilized each year. This, combined with weakened machinery for budget execution due to staff departures, could further exacerbate the issue in 2024–2025.

To address this, the committee recommended establishing proper mechanisms to ensure optimal utilization of the capital budget. It could involve either allocating resources based on the implementation capacity of budgetary bodies or potentially reducing the overall capital budget.

Furthermore, the committee commended the government’s commitment to allocating a proportionate budget for Human Resource Development (HRD) and Research & Development (R&D), estimated to be 1 percent of the GDP in the 13th FYP. They recommended that relevant agencies receive their designated allocations in FYP 2024–2025.

To navigate inflation and external pressures, the committee delved deeper into the national budget, recognizing both opportunities and challenges presented by the country’s economic landscape.

A significant concern raised by the committee of potential for increased inflation. The proposed budget, coupled with the Economic Stimulus Package (ESP) expenditure and off-budget hydropower project constructions, could inject a significant amount of money into the economy. This, they expect, could lead to a rise in inflation, potentially impacting the most vulnerable segments of society and the ways they can manage their inflationary risk.

The committee also acknowledged the existing inflation rate of 4.8 percent as of April 2024 and the limited domestic production capacity.

To mitigate these risks, the EFC urged the government to collaborate with the Royal Monetary Authority (RMA) and develop effective measures to manage inflation. It could involve strategies such as increasing domestic production, promoting exports, and exploring ways to manage excess liquidity in the market, which is estimated to reach Nu 13.5 billion in FY 2024–2025.

The committee also highlighted the importance of strengthening the foreign exchange reserves. With a significant portion of the budget allocated towards recurrent expenditure and limited domestic production, the government’s spending could deplete international reserves.

The EFC recommended a renewed focus on export promotion and import substitution strategies. Encouraging domestic production of essential goods and fostering industries with export potential would not only reduce reliance on imports but also generate foreign currency inflows, ultimately strengthening international reserves.

In terms of addressing cost-of-living adjustments, the committee observed that the proposed budget did not account for inflation when calculating recurrent expenditures. With inflation at 4.8 percent, the purchasing power of the Ngultrum had declined.

Recognizing this challenge, the EFC recommended adjusting the recurrent budget for all budgetary agencies to account for inflation.

Finally, the EFC’s review of the national budget serves as a valuable compass for navigating Bhutan’s economic development journey.

The committee’s recommendations highlight the need for a multi-pronged approach; balancing investments in infrastructure and human capital development with strategies to manage inflation and strengthen international reserves is crucial. Additionally, ensuring optimal utilization of budgetary resources and promoting domestic production are essential for long-term economic health.

Meanwhile, the house unanimously adopted the supplementary budget appropriation bill for fiscal year 2023-24 for Nu 3,224.924 million and also adopted the budget appropriation bill for 2024-2025 for Nu 97,654.829 million.

The Bills will be transmitted to the National Council for deliberations.

Related Posts

About The Author