Budget report

The finance minister presented the government’s budget proposal on Monday. Here are some of my random thoughts on the budget.

Pay increase. Last year’s pay hike for public servants cost the government Nu 380 million.

PIT increase. The government made an extra Nu 247 million in personal income taxes last year, mainly because of the pay hike.

Tax refund. The government collected Nu 28 million by increasing vehicle taxes unlawfully last year. At the Supreme Court’s orders, the government has refunded that money to the taxpayers.

Government expenditure. The government’s expenditure for this financial year is budgeted at Nu 38,020 million. That works out to 45% of the GDP. But the government’s expenditure for the construction of mega-projects (several hydropower projects and one cement plant) is not included in the budget although it is included in the GDP. Similarly, the government’s expenditure on the armed forces is also not included in the budget. Factor them in the budget, and the government’s expenditure could get to above 80% of GDP. That goes to show how very weak our private sector is. That also shows how unproductive our farms are.

Current expenditure. The good news is that current expenditure (Nu 17,185 million) continues to be financed from domestic revenue (Nu 18,606 million)

Grants. 42.6% of the government’s total resources come from grants. 66.5% of the capital expenditure is financed through grants. India is by far the largest donor contributing 74.3% of the total grants.

Debt. The bad news is that the government’s debt will increase to Nu 55,721 million during this financial year. That works out to 66.02% of GDP. 60% of the debt is for hydropower projects. By 2014, total debt is projected to increase to Nu 79,472 or 71.63% of the projected GDP. By then, 68% of the debt will be from hydropower projects.

Hydropower. Revenue from hydropower is expected to fall this year mainly because of the “substantial investments required to address problems in the Tala plant”. The Tala plant was commissioned on March 2007.

Lottery. The government has decided to discontinue lottery operations in India. So it will forgo income estimated at Nu 200 million this year. The government should not completely pull out from the lottery business. Instead, it should clean up the current mess, and then improve the system so that much larger revenues can be earned from the sale of lottery tickets in India.

CDG. Nu 282 million has been allocated for constituency development grants for the past three years. 460 projects costing Nu 172 million have so far been identified. Of that only Nu 106 has been used. I still don’t agree with the CDG. But if it must continue, allow the local governments to use the funds. Another Nu 94 million has been kept aside for CDG this year.

More to come tomorrow. But in the meantime, please give me your views on these thoughts, and any others that you may have on the budget. The National Assembly will debate the budget on Friday.

Misleading numbers

Spin doctor

Spin doctor

The other day Kuensel reported that: Bhutan’s gross domestic product (GDP) growth slumped to one of its lowest at 5 percent in 2008 despite the Druk Phuensum Tshogpa’s target of achieving a 9 percent growth rate annually.

To this Dr Saamdu Chetri, the head of good governance section in the cabinet secretariat and DPT party member, was quoted as saying: “With inflation going up to 9.2 percent and a global recession, a growth rate of five percent is still an achievement.”

There’s no doubt that the recent global recession would have constrained economic growth. So there could be some truth in Dr Saamdu’s claim that, given the recession, a 5% growth in GDP is an “achievement”.

But claiming that a 5% economic growth is an “achievement” because we experienced inflation of up to 9.2% is misleading. Inflation offsets real growth. So if inflation was 9.2%, then in real terms our economy did not grow by 5%; it would have actually shrunk by 4.2% during 2008.

Is the GDP in our GNH?

Here’s some good news from the RMA: our GDP, which is about Nu 59 billion, grew by 21.4% in 2007 and increased per capita GDP to US$ 1900. Not bad. We now have the highest GDP per person in South Asia. But what does this mean?

Do you contribute your share to the GDP? If you do, you would have contributed US$ 1900 worth of goods or services to the economy. And if you do that, you would earn US$ 1900 in one year. Now US$ 1900 is roughly Nu 95,000 which is about Nu 7,900 a month. Do you earn that much? If you do, you earn your share of the GDP. If you don’t, you earn that much more, or less, of the GDP.

But let’s say you are married, that your spouse does not work, and that you have two young children. That’s a total of four people in your family living off only your salary – that wouldn’t be farfetched. Now how much would you have to earn to get your family of four to enjoy their share of the GDP? Nu 7,900 times 4, or Nu 31,600 a month. Do you earn that much? Probably not. Most families don’t.

What does this mean?

This means that we don’t work to earn much of the money that is pumped into our economy in the form of international loans, aid and hydropower exports. This means that imports dominate exports. That money does not circulate among us sufficiently. And this means that we don’t have enough people working outside our farms. This means that our GDP is not really that impressive.

I’ll be happier with a smaller GDP and a much more modest per capita GDP, but one which truly reflects our productivity. A per capita GDP that most Bhutanese can claim to earn.

And one more thing: I’ll be happy if my earnings, however humble they may be, grew at more or less the same ratio as the GDP.