Contracting Fiscal Deficit projected for 2024-25 FY

It is largely attributed to increasing public resources and decreasing expenditures amidst the commissioning of few hydropower projects towards the year end

The Bhutanese economy is projected to run on a fiscal deficit of Nu 1,444.899 Million (M) during the next Fiscal Year (FY) 2024-25. However, the fiscal deficit is a massive shrinkage from the Nu 21,248.373M projected during the current FY 2023-24.

As a percentage of GDP, it projects to shrink from 9.7% during the current FY to a mere 0.6% during the FY 2024-25.

Government expenditure for the FY 2024-25 is projected at Nu 70,892.759M, up and against a total resource of Nu 69,447.860M, which means that the expenditure will be more than the resources for the next FY.

The projection is a slight dip from the current FY expenditure of Nu 74,861.615M. Current expenditure makes up Nu 46,622.126M while Nu 24,270.633M is projected as capital expenditure.

According to the Budget Report on financial performance and outlook released by the Finance Ministry, the total public debt is projected at 123.1% of Gross Domestic Product (GDP) while external debt is projected at 106.1% of GDP.  The total public debt and total external debt in the current FY is projected at 134.9% and 115.4% of the GDP respectively.

Meanwhile, the total estimated resource for FY 2023-24 is Nu 53,513.2M, a decrease of 12.4% from the FY 2022-23 revised resources estimate. The total estimated domestic revenue of Nu 46,245.8M for FY 2023-24 is inclusive of Nu 4,000M being transferred from the Druk Holding and Investments (DHI). The domestic revenue excluding the transfer from DHI is estimated at Nu 42,245.8M, which is an increase of 3.5% from the previous FY. The estimated external grants of Nu 6,367.4M consists of Nu 2,320.1M from GoI, Nu 1,743M from Asian Development Bank (ADB), Nu 401.2M from World Bank, and the remaining from other development partners.

Total expenditure is estimated at Nu 74,861.6M of which recurrent allocation is Nu 45,545.9M and capital allocation is Nu 29,315.7M which constitutes 60.8% and 39.2% of the total expenditure respectively. Of the total capital expenditure, about 27% is financed through internal/external grants, and 73% from external/internal borrowings.

Likewise, GDP growth is projected at 5.2% in 2024, with the agriculture sector’s growth poised at 3.9%, industry sector at 3.7%, and services sector at 6.4%. Going forward, although public consumption is projected to grow by 5.6% in 2023 and 5% in 2024, the government’s fixed capital investment may decline as capital allocation would be mainly concentrated for critical and on-going projects during the plan transition phase.

Over the medium-term, economic growth will follow a positive trajectory supported by multiple structural changes including commissioning of various hydropower projects – the 118MW Nikachhu hydropower project (January 2024), and Punatsangchhu hydropower project – II (December 2024). With the tourism sector on its path to recovery, both international and regional arrivals are expected to increase, contributing positively to the economic growth. With this, the economy is projected to grow at 5.2% in 2024. However, risk to outlook remains on a downside with global economic slowdown or a slowdown in India, including possible emergence of new pandemic waves. Domestic risks include prolonged financial sector strains amid limited fiscal space and delays in hydro projects, which would affect growth prospects.

Export earnings through both hydro and non-hydro merchandise continues to see a rising trend over the years with projected earnings of Nu 23,138M through hydropower exports and Nu 38,767M through non-hydro exports in 2024. However, with the increasing power demand and plans for the establishment of new power-intensive industries being pursued, the internal consumption is expected to increase. The commissioning of new hydro and solar power projects is expected to offset the impact of increased domestic demand.

The export is estimated to grow at an average of 8.3% in the next five years while imports will sustain a growth rate of 1.9%. Overall export is estimated to grow attributable to increase in the hydropower export revenue with the expected commissioning of various hydropower projects.

Tashi Namgyal from Thimphu