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Budget Policy & Fiscal Framework Bhutan’s Macro-economy and Public Finances in the Medium-Term Eleventh Round Table Meeting THIMPHU 2 nd September, 2011 Ministry of Finance Royal Government of Bhutan © mof_rgob 2011 0
Outline 1.The Budget Policy & Fiscal Framework (BPFF) 2.Macroeconomic Outlook in the Medium Term (Fiscal Years 2009/10 – 2013/14) 3.Projections of Public Finance 4.Public Expenditure Management Initiatives 5.Domestic Financing Trends 6.Official Development Assistance © mof_rgob 2011 1
The Framework: Basis 1.Result of reforms in Good Governance (2005). 2.A starting point for the Government’s Resource Allocation Mechanism (RAM). 3.A first, necessary step for implementing Multi- year Rolling Budgets (MYRBs). 4.Links policies and plans (i.e. Five Year Plans, Vision 2020, and MDGs) to the annual budgets. 5.Adopted as per the Public Finance Act 2007. © mof_rgob 2011 2
The Framework: Principles 1.A move from needs-based to availability-based budgeting. 2.Determines resource envelope and project revenue requirements. 3.Fundamental principles: a.Maintain aggregate fiscal discipline. b.Allocate budgetary resources efficiently. c.Ensure value for money spent. 4.Typically covers a period of current year’s estimate and actuals or projections for two outer years on a rolling (1+2) basis. © mof_rgob 2011 3
The Framework: Process © mof_rgob 2011 4 Macroeconomic Framework Coordination Committee (MFCC) : Secretarial-level policy and decision-making body Macroeconomic Framework Coordination Technical Committee (MFCTC) : Agency-level technical analysis body Department of Energy, Ministry of Economic Affairs Research & Statistics Department, Royal Monetary Authority National Accounts & Price Division, National Statistics Bureau Development Cooperation Division, Gross National Happiness Commission Department of Revenue & Customs, Ministry of Finance Department of Public Accounts, Ministry of Finance Policy & Planning Division, Ministry of Finance Department of National Budget, Ministry of Finance Electricity Projections BoP Projections GDP Projections Grants Projections Revenue Projections Debt Projections Expenditure Projections * Compilation and/or Fiscal Projections * Set Fiscal Targets; Budget Ceiling; and, Resource targets in the Medium Term Projections of macroeconomic and fiscal aggregates in the medium term
Macroeconomic Outlook © mof_rgob 2011 5 Table 1. BPFF: Macroeconomic Aggregates FY09/10FY10/11FY11/12FY12/13FY13/14 Average: 2011 – 2014 ActualRevisionEstimateProjection In Millions Ngultrum (unless otherwise stated) Real GDP Growth (%) 8.738.116.458.5010.508.48 Nominal GDP 66,494.8275,690.5184,399.8695,898.33110,948.91 97,082.36 Agriculture, Livestock & Forestry 15.2214.3313.7112.8711.8612.81 Industry 45.1146.0345.9846.9349.0247.31 Services 36.9336.9037.5437.4236.3837.11 Inflation 5.738.166.494.00 -- Current Account Balance -8,754.90-6,000.80-10,075.52-21,283.18-25,701.40 -19,020.03 Trade Balance -13,938.19-11,006.62-15,844.89-20,064.28-23,722.71 -19,877.29 Capital & Financial Account 7,008.9812,495.1519,528.4425,173.5227,944.89 24,215.62 Overall Balance 4,401.406,494.359,452.923,890.342,243.49 5,195.58
Macroeconomic Outlook © mof_rgob 2011 6 Table 1. BPFF: Macroeconomic Aggregates (Continued) FY09/10FY10/11FY11/12FY12/13FY13/14 Average: 2011 – 2014 ActualRevisionEstimateProjection In Millions Ngultrum (unless otherwise stated) External Debt Outstanding 35,736.6742,035.8355,020.5267,187.0279,121.72 67,109.75 As a % of Nominal GDP 53.7455.5465.1970.0671.31 68.85 Rupee (India) Debt 18,277.618,572.0025,043.8034,145.5044,776.80 -- Hydropower Debt 22,294.5025,378.8033,306.6142,796.5153,870.67 43,324.60 As a % of Total Debt 60.6059.1459.7763.2067.79 -- As a % of Total External Debt 62.3960.3760.5363.7068.09 64.11 Total External Debt Service 4,272.123,950.864,069.654,332.175,552.3713,954.18 External Debt Service Ratio 13.1413.4713.3112.7014.41 -- Gross International Reserves ($) 856.311,018.281,162.951,190.061,233.52 -- In Months of Imports of GNFS 11.0113.5614.3713.8013.27 --
Macroeconomic Updates 1.Projections of growth rely disproportionately on accurately sequencing construction cycles of hydropower projects. 2.Recent price pressures threaten to erode strong gains in growth. 3.Favorable overall balance albeit import and aid dependency. 4.Foreign reserve accumulation not a result of export performance. © mof_rgob 2011 7
Macroeconomic Updates 5.Unemployment rate at 3.3% in CY 2010. 6.Price, interest, and exchange rates in Bhutan, for the most part, fluctuate in tandem with rates in India. 7.Significant increase in public external debt obligations on account of ‘commercially viable’ hydropower projects. 8.Excluding private debt, government debt service ratio at 14% (of exports of goods & services). © mof_rgob 2011 8
Public Finance Projections © mof_rgob 2011 9 1.BPFF projections going forward; critical assumptions: a.Capital expenditure remains dependent on external financing. b.No new (ODA) commitments beyond the end of the Tenth Five Year Plan (FY 2012/13). 2.Current expenditures fully met through domestic revenues in the medium term.
Public Finance Projections © mof_rgob 2011 10 Table 2. BPFF: Public Finance Aggregates FY09/10FY10/11FY11/12FY12/13FY13/14 Average: 2011 – 2014 ActualRevisionBudgetedProjection In Millions Ngultrum (unless otherwise stated) Resource (Revenue + Grants) 30,990.6830,549.6632,546.0424,696.3719,249.9125,497.44 Domestic Revenue 15,638.4316,962.5518,606.9818,825.0519,249.9118,893.98 Tax Revenue 9,655.7811,097.8912,857.0212,382.4012,564.19-- Grants 11,118.8813,314.0013,859.125,871.320.006,576.82 Project-tied Grants 9,149.5511,430.2011,958.384,269.620.005,409.34 Programme Grants 1,969.331,883.791,900.741,601.700.00-- Outlay (Total Exp. + Net Lending) 29,888.9934,196.6237,857.8028,635.9031,616.5732,703.42 Total Expenditure 25,831.8335,073.0837,954.7029,727.3333,504.9433,728.99 Current Expenditure 12,902.6915,772.2717,185.3118,945.8318,657.0418,262.73 Capital Expenditure 12,929.1419,300.8220,769.4010,781.5014,847.9115,466.27
Public Finance Projections © mof_rgob 2011 11 Table 2. BPFF: Public Finance Aggregates (Continued) FY09/10FY10/11FY11/12FY12/13FY13/14 Average: 2011 – 2014 ActualRevisionBudgetedProjection In Millions Ngultrum (unless otherwise stated) Net Lending -400.37-876.47-96.91-1091.44-1888.37-- Fiscal Balance 1,101.69-3,646.96-5,311.76-3,939.52-12,366.66-7,205.98 As a % of Nominal GDP 1.66-4.82-6.29-4.11-11.15-7.18 Financing -1101.693,646.965,311.763,939.5212,366.66-- Borrowing 2,817.513,106.372,403.202,622.46733.03-- Repayment 2,735.532,348.062,353.412,535.902,768.99-- Resource Gap -1,183.672,888.655,261.973,852.9614,402.62Σ 23,517.56 As a % of Nominal GDP -1.783.826.234.0212.987.74
Public Finance Updates 1.Government spending drives overall growth in Bhutan. 2.Internal resources adequate to meet current expenses as per Constitutional stipulation. 3.Projections of sustainable fiscal balances upto the end of the 10 th FYP assumes continued inflow of already committed ODA. © mof_rgob 2011 12