The royal government has announced an expansionary fiscal policy as part of its 13th Five-Year Plan (FYP), designed to stimulate economic growth while maintaining a sustainable fiscal path.
The approved outlay for the 13th FYP has increased significantly to Nu 512 billion (B), a remarkable 65.16% rise from the Nu 310B allocated in the previous 12th FYP.
Similarly, with focus on maintaining a fiscal deficit within 3.0% of Gross Domestic Product (GDP) on average, the government is prioritizing strategic investments in infrastructure, economic development, social security, and governance.
The government is also committed to enhancing the efficient utilization of existing capital, improving fiscal transparency, and optimizing resource allocation, among others.
According to the Ministry of Finance (MoF), the recent budgetary updates reveal a revised total outlay of about Nu 91.4B for Fiscal Year (FY) 2024/2025, alongside an upward revision of resources to about Nu 77.39B. This is expected to improve the overall fiscal balance, with a projected deficit of about Nu 14B, representing 4.65% of GDP. This marks a notable improvement of 0.69% points compared to initial estimates from the first quarter, according to the Finance Ministry.
However, the Ministry’s forecasts indicate that the fiscal deficit may worsen in the medium term, with projections of 5.85% of GDP in FY 2025/2026 before improving to 2.05% in FY 2026/2027. Increased recurrent expenditures, particularly in debt servicing, are contributing factors. The primary deficit estimates for FY 2024/2025 and FY 2025/2026 stand at 2.28% and 3.38% of GDP, respectively.
For instance, despite the concerning trend in fiscal balance, with a projected deficit growth from Nu 11.22B in 2022/2023 to Nu 19.99B by 2026/2027, the government remains optimistic about potential revenue growth. The key measures include broadening the tax base and shifting reliance from income tax to goods and services tax to ensure consistent revenue inflows throughout the year.
In terms of quarterly fiscal performance, according to the Finance Ministry, the current quarter has seen a fiscal deficit of about Nu 2.8B, compared to a surplus of about Nu 1.13B in the first quarter of FY 2024/2025. Projections indicate a peak deficit of about Nu 6.9B in the third quarter of the FY 2024/2025, with revenue expected to rebound in the fourth quarter.
Meanwhile, despite the anticipated growth in revenue and expenditure, the Finance Ministry highlighted that the fiscal balance shows a concerning trend, with a projected deficit widening from Nu 11.22B in 2022/2023 to Nu 19.99B in 2026/2027. “As a percentage of GDP, this deficit is expected to reach 5.85% by 2026/2027, raising alarms about fiscal sustainability,” the Ministry stated.
Though the fiscal framework indicates a strong potential for revenue growth, the rising expenditure and corresponding deficits warrant careful monitoring and strategic fiscal management to ensure sustainable economic health in the coming years.
A financial expert said that as Bhutan navigates these fiscal challenges, strategic resource allocation is a key to achieving its fiscal discipline goals while fostering sustainable economic growth.
The expert said that the authorities committed to monitoring expenditure and implementing measures to support financial health in the upcoming fiscal years is a good indicator for the country in monitoring the fiscal policy in the country.
Sherab Dorji from Thimphu
