Government clarifies, says it might be a tipping point for more tourist arrivals later
While acknowledging the low internal revenue-to-Gross Domestic Product (GDP) ratio being low, the Ministry of Finance (MoF) stated that the recently initiated airfare is expected to increase overall domestic revenue and internal revenue to GDP ratio, contribute to foreign exchange reserve, increase employment generation in the tourism sector, and increase tourist arrivals in the country, and could be a tipping point to more tourist arrivals later.
The finance ministry was justifying to the Opposition Party seeking clarifications from the government regarding the airfare subsidy for SDF-paying tourists. The Opposition Party communicated that while they acknowledge and commend the government’s intent to revitalize the tourism industry, they believe this policy requires careful reconsideration to serve the larger interest of the nation.
“First and foremost, the subsidy scheme is deviating from the nation’s well-established ‘high value, low volume’ tourism policy that was envisioned by our monarchs. Besides, reduction of international airfares to SAARC levels through subsidy directly contradicts the objective of Sustainable Development Fee (SDF) which was aimed at making Bhutan a high-end tourist destination,” the Opposition Leader (OL), Dasho Pema Chhewang said.
In their response, the MoF stated that in order to increase the number of SDF-paying tourists during the lean months (December, January, February and June, July, August), the government has decided to reduce the airfare of SDF-paying tourists at SAARC airfare level. “It is a price subsidy to lower the cost of air tickets for the SDF-paying tourists only, not all travelers, to encourage the SDF-paying tourists to visit Bhutan during the lean season. As such, this is not to be mistaken as a subsidy to the airlines,” said the MoF.
In addition, the Opposition’s correspondence mentioned that the airfare subsidy distorts the consistency of policy narrative which is critical in guiding the development strategies and in gaining the trust and confidence of the stakeholders including the tourists.
The OL further mentioned that noting the temporary nature of subsidy, the scheme will unnecessarily risk creating dependence on the government. “Moreover, the airfare subsidy which roughly amounts to USD 125 per person may not motivate the international tourists to visit Bhutan; it could rather trigger market instability upon expiry of the subsidy.”
According to the finance ministry, the introduction of airfare subsidies is an investment that is expected to increase the number of tourists from 7,213 (actual figure for 2023) to over 9,600 tourists from December 2024 resulting in improved domestic revenue generation. The projected subsidy is about Nu 96 million (M) estimated based on per ticket cost and target arrivals.
The OL opined that in order to materialize the subsidy, the government is apparently intending to use internal resources against its initial plan of using ESP money. “We would caution the government that parliament had not approved any budgetary provision to fund this scheme in the annual budget,” it said. Moreover, the budget for FY 2024-25 barely 6 months into its operation and given the nature of expenditure, the OL remarked that usage of any RGoB resources, even by way of technical adjustment within the approved budget, may not fulfill the necessary conditions required for such adjustments thereby contravening legal provisions under the Public Finance Act. “Therefore, we urge the government to reconsider this initiative and explore alternatives that align more closely with our core policy values,” it said.
With regard to fiscal space in the FY2024-25, MoF said that the fiscal space after meeting the recurrent expenses in FY 2024-25 is Nu 5,850.520M. “This means, as long as the subsidy payment of Nu 96M is adjusted and met from within the approved budget of FY 2024-25 upon the approval of Lhengye Zhungtshog (LZ), it is deemed appropriate within the existing law and financial rules and regulations,” the MoF responded.
The Opposition said that prioritizing investment support to eco-tourism infrastructure, cultural preservation, field amenities without compromising on long term policy may enable the government in reviving and sustaining the tourism sector. “Incase these measures fail to enhance the number of tourists, the government could perhaps revisit SDF and explore rooms for adjustment,” the OL supplemented.
Meanwhile, tourist arrivals in Bhutan during the winters of 2023 and 2024 reveal an upward trend in visitation. From January to May 2024, Bhutan recorded 64,941 tourist arrivals, a significant increase from 43,074 during the same period in 2023. This rise is attributed to improved road connectivity, relaxed SDF rates, and targeted marketing initiatives.
For May 2024 specifically, Bhutan welcomed 23,547 visitors, compared to 16,609 in May 2023. Indian tourists made up a substantial proportion of these arrivals, while international arrivals also showed growth, reaching 78% of pre-pandemic levels for the same period in 2019. This growth illustrates Bhutan’s recovery in tourism following the pandemic, but challenges such as pricing policies and workforce shortages persist.
By Tashi Namgyal from Thimphu
