The royal government has provisioned a budget of Nu 5.59 billion (B) under general reserve (GR) for the Fiscal Year (FY) 2024-2025. However, the transfer from the specific provision shall be made for implementation upon fulfillment of established criteria and formalities including the conditions laid out in the Guidelines for General Reserve 2022.
As a part of the annual budget, certain budget provision is maintained by the royal government as GR to meet the funding needs for specific unforeseen, unavoidable and ad-hoc priorities which cannot be evaluated at the time of budget formulation.
Amongst the ten activities of specific unforeseen, unavoidable and ad-hoc priorities, the highest budget is allocated in national contingency with about Nu 2.2B, followed by ad-hoc works with about Nu 1.5B and Nu 715B and Nu 585 million (M) in remuneration for critical unforeseen recruitment or establishment, leave encashment and disaster contingency respectively.
While the least transfer of general reserve was about Nu 15M in hospitality and entertainment activities, followed by Nu 20M and Nu 35M for bye-election and third country travel activities.
Other general reserve allocation includes in retirement benefits with Nu 150M, rehabilitation program with Nu 70M, national exams activities with Nu 300M, amongst others.
Meanwhile, the external borrowings exclusively comprise concessional loans sourced from multilateral development banks like the ADB, World Bank, and IFAD.
These loans are obtained under highly favorable terms to finance the budget deficit, featuring interest rates ranging from 0.75% to 1.5% extended grace periods ranging from 8 to 10 years, and repayment periods spanning 24 to 30 years.
In FY 2024-25, the estimated external borrowing amounts to about Nu 9.1B which includes Nu 3.3B for program borrowings that is earmarked for financing governmental budgetary activities.
The remaining Nu 5.7B is designated for project-tied borrowings. Of this sum, about Nu 2.3B will be allocated for on-lending to State Owned Enterprises (SOEs).
Similarly, the government has to pursue domestic borrowing as a last resort, tapping into it when principal recoveries and external concessional financing fall short of covering gross financing needs (GFN).
In the FY 2024-25, principal recoveries are projected to cover 17.1% of GFN, while external concessional borrowings are estimated to cover only 37.2%. Consequently, 45.7% accounting to about Nu 11.1B of GFN will need to be financed from the domestic market through issuance of long-term financial instruments (government bonds).
Meanwhile, according to the Royal Monetary Authority (RMA), the country’s foreign reserve from the month of January till May 2024 stood at USD 2956.71M, a decrease by USD 3.52M as compare to same month last year.
During the year 2023, the foreign reserve from the month of January till May stood at USD 2960.23M.
According to the monthly statistical bulletin of the central bank, the foreign reserve this year stood at USD 561.63M in the month of January and USD 658.59M and USD 581M in the month of February and March respectively.
Similarly, in the month of April and May this year, the foreign reserve stood at USD 599.68M and USD 555.81M respectively,
Meanwhile, there are various measures endorsed in the 13th five year plan, such as investment in the green bond. The green bond is a special-backed security to encourage foreign remittances and investment, wherein the Bhutanese sending money from abroad could benefit from the coupon rate of the bond.
The green bond is considered very secure as it is backed by the sovereign guarantee of the government.
For instance, foreign exchange reserves are assets denominated in a foreign currency that are held by a nation’s central bank. These may include foreign currencies, bonds, treasury bills, and other government securities. The main reason for the declining foreign reserve of the country is due to soaring import bills and appreciating USD against the Ngultrum.
By Sherab Dorji, Thimphu
