Parliament expresses concern over increasing fiscal deficit and unresolved irregularities

Unresolved irregularities amount to Nu 2,225.61mn for the FY 2020-2021

The Members of the Parliament (MPs) expressed concern over the increasing fiscal deficit and unresolved irregularities when the Public Accounts Committee (PAC) presented the Annual Audit Report (AAR) to the Parliament during the Joint Sitting on June 29.

For the Fiscal Year (FY) 2020-21 (January to June 2021), unresolved irregularities amount to Nu 2,225.61mn, according to the AAR. Out of the total Nu 3,965.15mn unresolved irregularities reported during the last Parliament session, only Nu 1,739.54mn (43.87%) got resolved as of May-end of this year.

The fiscal deficit increased by 69.33% compared to the fiscal deficit of 2019–20 as per the AAR.

Amongst the agencies, the budgetary agencies have the highest unresolved irregularities. In particular, Dzongkhags (89.88%) followed by Ministries (72.73%) have the highest unresolved percentages. PAC commended that financial institutions did not have any observation.

The total unresolved irregularities by categories amount to Nu 1,642.44mn (72.58%) pertaining to non-compliance to laws, rules, and regulations.

PAC’s AAR stated that despite laws, rules, and regulations in place, observations occurred due to weak oversight or control on the part of dealing officials.

The RAA audited the Annual Financial Statements (AFS) of the Royal Government of Bhutan (RGoB) for the FY 2020–21.

The PAC observed that the approved budget for the FY 2020–21 was Nu 69,151.122mn, which was revised to Nu 85,381.423mn. The source of government funds comprised 40.87% from domestic revenue, 16.96% from external grants, 16.32% from borrowings, 2.74% from recoveries, and 23.10% from other receipts. The internal borrowings amounted to Nu 9,103.684mn and external borrowings Nu 5,211.993mn. Total grants received during the year amounted to Nu 14,882.289mn – Nu 14,242.530mn in cash and Nu 639.760mn in kind.

The fiscal deficit, it was found, has consistently increased over the years. It has increased from Nu 545mn in the FY 2017-18 to Nu 11,139mn in the FY 2020-21, which could be attributed to the limited revenue growth and increased public spending owing to the Covid-19 pandemic. The proportion of current expenditure to internal revenue for the FY 2020-21 was 88.94%.

The total expenditure recorded for the year amounted to Nu 71,091.811mn, resulting in overall underutilization of the revised budget by 16.74%. During the period, there was under-absorption of the capital budget by 32.56%.

The government debt stood at Nu 238,398.910mn as of June 30 compared to Nu 184,174.52mn at the end of the FY 2018-19 and Nu 215,369.84mn at the end of the FY 2019-20.

For the FY 2020-21, of the total debt, Nu 17,074.437mn accounted for internal debt and Nu 221,324.473mn for external debt. The major portion of the debt relates to borrowings for hydropower amounting to Nu 162,359.048mn or 73.40% of the total external debt.

As per the Committee’s finding, besides increased fiscal deficit, underutilization of capital budget increased from 24% in 2019–20 to 32.56% in 2020–21.

The debt to Gross Domestic Product ratio increased from 122.6% in the FY 2019–20 to 129.06% in the FY 2020–21. While the hydro debt to total debt has been decreasing, non-hydro debt has been increasing.

It was also found that audit observations are increasingly recurring over the years, without any deterrence as a result, and cases of accountability are fixed on the officials who have no direct involvement in the observations.

The PAC recommended that the government may consider mainstreaming parameters in the Annual Performance Agreement (APA) to assess the overall financial prudence of agencies.

MP Anand Rai from Sarpang raised concern about the increasing fiscal deficit, unresolved financial irregularities, and under-utilization of the capital budget.

He said that as Bhutan would graduate from the Least Developed Countries (LDC) to Middle Income Group by 2023, the country should have a domestic reserve. “The need for domestic reserve should be recommended by the PAC,” he said.

The NA speaker moved the motion in the Joint Sitting for the recommendation of the Sarpang MP. However, a majority of the members did not support the motion.

MP Dorji Khandu from Gasa also raised a similar concern – an increased fiscal deficit with more expenditure and less revenue.

He said that Bhutan is at the stage of walking inflation while questioning the contradiction of expenditure and capital underutilization.

MP Nima from Buthang said that financial irregularities are due to non-compliance with laws, rules, and regulations, and they need to be reviewed.

Finance Minister Namgay Tshering and Opposition Leader Dorji Wangdi said it is time to review the laws, rules, and regulations with the changing time.

The OL said the Committee’s recommendation to mainstream the APA may not be the solution. He added to rather equip and train the officials, especially gewog officials.

The member of the PAC, Eminent Member Phuntsho Rapten said that unresolved irregularities are due to non-compliance with laws, rules, and regulations.

He said, “These are excess payments, payments made for works not executed, undue delay in completion of works, etc., are the most common and recurring lapses in most of the public agencies.”

Another lapse, he said, was that decisions were taken at the higher-level authority but the accountability was fixed to the officials at the lower position level.

The AAR 2020–21 was compiled from 197 audit reports issued between January 1, 2021, and June 30, 2021.

Sangay Rabten from Thimphu