Revenue for Bhutan expected to increase during FY 2022-2023

Significant contributions anticipated from Mangdechhu Hydroelectric Project (MHP), dividends from the Druk Holding and Investments (DHI) and royalties from the tourism sector

In what is a positive development for Bhutan’s economy, the total revenue that can be generated for the fiscal year 2022-23 has been revised to Nu. 40,829 million ngultrums (mn), marking a significant increase of 12 percent from the initially budgeted amount of Nu. 36,368mn.

This upward revision is expected to have a favorable impact on the country’s financial health, according to the third quarter macroeconomic situation report released by ministry of finance (MoF).

Further as per the Constitutional mandate, recurrent budget has to be met from domestic revenue, which is estimated to be about Nu 43.24 billon (bn), apart from another Nu 9.82 bn as grants. The report also states that the revenue growth is driven by marginal increases in both direct and indirect taxes.

Notably, significant contributions are anticipated from profit transfers from the Mangdechhu Hydroelectric Project (MHP), dividends from the Druk Holding and Investments (DHI) and royalties from the tourism sector. These positive trends indicate a promising economic outlook for Bhutan, the report says.

Meanwhile, domestic revenue refers to the generation of government revenue from domestic resources, from tax or non-tax sources. As per the MoF, domestic revenue covers 19 % of Gross Domestic Product (GDP) and 122.52 % of recurrent expenditure of the government.

During the previous fiscal year, (FY) 2021-22, the country witnessed a total domestic revenue realization of Nu. 39,043.07 mn, reflecting an encouraging increase of 9.7 percent from the budgeted amount of Nu. 35,600 mn.

“The noteworthy revenue growth was primarily attributed to a surge in Corporate Income Tax (Nu. 2,822.07 million), Sales Tax (Nu. 1,498.07 million), and dividend receipts (Nu. 1,042.21 million),” the report states. However, taxes related to international trade and transactions, such as customs and other import duties, saw a decline.

The revenue generated in FY 2021-22 was sufficient to cover 56.46% of the total expenditure, marking an improvement from the previous fiscal year where it covered only 50.46 %. This increased coverage was primarily a result of a decrease in the percentage change of total expenditure and an increase in the percentage change of revenue. While revenue increased by 8.89 % from the previous year, total expenditure decreased by 2.72 %. The ratio of domestic revenue to current expenditure for FY 2021-22 stood at 113.4, demonstrating a positive trend compared to the previous fiscal year’s ratio of 112.4.

Additionally, the report states that at the end of the first quarter of the financial year 2022-23, the total amount of resources obtained was 22.12 % higher than what was initially estimated. This means that more resources than expected was generated.

Out of these resources, 65.02% came from domestic revenue. External grants, which are funds received from other countries or organizations, contributed 48.75% to the total resources.

Additionally, other receipts, such as fees or fines, accounted for 45.97% of the total resources obtained.

Furthermore, external borrowings made up 3.17 % of the total resources realized.  Recoveries, which represent the amount of money that was paid back, accounted for 0.98 % of the total resources obtained.

The report says that these financial indicators highlight the positive trajectory of Bhutan’s economy, with increased revenue surpassing initial budget expectations. The country’s reliance on diverse revenue streams and careful expenditure management have contributed to its economic stability and growth prospects for the coming fiscal year.

Tshering Pelden from Thimphu