The fiscal deficit in the financial year (FY) 2025-26 is expected to remain at Nu 20 billion (B), or 5.85% of the country’s Gross Domestic Product (GDP), according to the Ministry of Finance’s budget call notification. The fiscal deficit, a difference between total revenue and total expenditure of the country in a financial year, is expected to be addressed through external and domestic borrowings.
The Finance Ministry has allocated a total resource of Nu 89.35B for the fiscal year, comprising Nu 67.28B from domestic resources and Nu 22.06B from external grants.
In the FY 2023-24, the fiscal deficit was estimated to be Nu 2.35B, equivalent to 9.7% of the GDP.
In order to ensure that the fiscal deficit is maintained at a sustainable level through effective prioritization of proposals, the notification outlines that capital budget ceiling under RGoB financing has been estimated for each agency based on the plan outlay and available external financing. “Each budget proposal will be evaluated based on its alignment with national priorities and available financing, with a focus on reducing nonessential expenditures,” the notification states.
To further address the growing deficit, government agencies are encouraged to focus on projects that stimulate economic growth and offer tangible social and economic returns. Non-priority projects, including certain donor-funded initiatives, should be rationalized.
To ensure that on-going policy initiatives and other strategic priority programs are adequately captured and sufficiently funded within the ceiling, the Finance Ministry has urged the respective Ministers and heads of the agencies to lead and engage closely in the budget preparation process for effective and efficient prioritization of programs and activities, allocation of resources and greater accountability.
As part of the transformation initiative of the enlightened entrepreneurship bureaucracy, the Finance Ministry will introduce to incentivize agencies that deliver increased revenue generation in FY 2025-26 resulting from innovation in the operating models with an augmented recurrent budget allocation in the subsequent FY.
According to the Finance Ministry, the budget proposals must be based on the Annual Work Plan (AWP) and must be prepared in strict adherence to the budget preparation guidelines. Moreover, budgetary agencies shall ensure that the proposed activities are in line with the 13 FYP, contributing to achieving the key performance indicators and targets.
The capital budget ceiling for budgetary agencies, including external financing, is approximately 20% of the 13 FYP outlay. To ensure timely completion of projects, the Finance Ministry reminded budgetary agencies to prioritize and expedite the implementation of approved donor-funded projects.
According to the notification, the restoration and reconstruction of public infrastructure damaged by disaster will be prioritized and proposed within the prescribed ceiling. “However, proposals for construction of new offices will be restricted,” stated the notification.
Additionally, in order to streamline and recognize the true cost of the works/goods/services, budgetary agencies are now required to estimate and capture the tax component in budget proposals for both externally financed and RGoB-funded projects. According to the notification, there shall be no tax.
In FY 2025-26, 15% of the 13 FYP Resource Allocation Formula (RAF) Outlay has been endorsed by the government for allocation to the local governments (LGs).
To ensure optimal prioritization and facilitate prompt implementation following the budget approval, the Finance Ministry has urged LGs to submit a tentative AWP including the donor-funded projects aligned with the Local Government Key Result Areas (LGKRAs).
Nidup Lhamo from Thimphu
