Nu 25.28 Billion Fiscal Deficit Retained for FY 2026–2027 Despite Calls for Reduction

The National Assembly on June 2, 2026, decided to retain the government’s proposed fiscal deficit of Nu 25.28 billion for FY 2026–2027, equivalent to 6.54 percent of Gross Domestic Product (GDP), despite recommendations from the Economic and Finance Committee (EFC) to reduce the deficit to 4 percent.

The decision came during deliberations on the Budget Appropriation Bill for FY 2026–2027 and the Supplementary Budget Appropriation Bill for FY 2025–2026, following the presentation of the EFC’s review report.

The Committee recommended approval of a supplementary budget appropriation of Nu 1.212 billion for the current fiscal year, stating that the proposed incorporation complied with existing laws and financial regulations. The House endorsed the recommendation.

A key issue during the deliberations was Bhutan’s widening fiscal deficit and its implications for long-term fiscal sustainability. While acknowledging the need to contain rising public expenditure, the Committee proposed a gradual reduction of the deficit to 4 percent of GDP through expenditure rationalization, prioritization of projects with stronger economic returns, and postponement of non-essential spending.

However, the government argued that such a reduction would be difficult to achieve within a single fiscal year without compromising critical development programmes and national priorities.

Finance Minister Lyonpo Lekey Dorji informed the House that reducing the deficit from 6.54 percent to 4 percent would require cuts exceeding Nu 13 billion.

“Reducing the fiscal deficit to 4 percent within one year would require budget cuts of more than Nu 13 billion, which could affect key national priorities and development programmes,” the Finance Minister said.

The Committee also expressed concern over Bhutan’s growing non-hydropower external debt and the associated foreign exchange risks. It recommended periodic stress testing under adverse exchange-rate scenarios and urged the government to adopt measures that would reduce exposure to currency fluctuations.

The Committee emphasized that future external borrowing should be directed toward productive sectors capable of generating economic returns and strengthening the country’s debt-servicing capacity.

Rising inflation and the increasing cost of living also featured prominently in the discussions. The Committee recommended a balanced policy approach that supports economic growth while maintaining price stability.

Among the measures proposed were strengthening domestic production, enhancing food security, improving supply chains, reducing import dependence, boosting productivity, and ensuring a smooth transition to the Goods and Services Tax (GST). The Committee further called for stronger market surveillance, improved price-monitoring mechanisms, expanded affordable housing initiatives, and broader strategies to cushion households from inflationary pressures.

Capital budget utilization was another area of concern. The Committee noted persistent implementation challenges affecting public investment projects and recommended stronger monitoring systems, improved accountability, and adequate deployment of human resources to ensure more efficient use of public funds.

On the performance-based grant system for gewogs, the Committee recommended a review of the framework to ensure fairness, inclusiveness, and balanced regional development. It also proposed extending performance-based approaches to dzongkhags and central agencies while ensuring they are supported by adequate institutional capacity.

The Committee raised concerns about the performance of state-owned enterprises, particularly Bhutan Livestock Development Corporation Limited (BLDCL) and  recommended a comprehensive performance review of the corporation. It suggested that options such as privatization or divestment be considered where appropriate.

The Rural Life Insurance Scheme (RLIS) also came under scrutiny. The Committee recommended institutionalizing annual budget allocations for the scheme to enhance transparency, accountability, and predictability. Given concerns over the programme’s long-term sustainability, the matter was tabled for further discussion.

The Committee also questioned the urgency of the proposed Nu 111.873 million allocation for resurfacing the Dochula–Wangdue Primary National Highway and recommended that the allocation be reconsidered pending a reassessment of the road’s condition.

Recognizing tourism as one of Bhutan’s most promising economic sectors, the Committee recommended an additional Nu 39 million allocation to support priority interventions aimed at accelerating the industry’s recovery and expansion.

Following deliberations, the National Assembly endorsed the supplementary budget proposal while maintaining the government’s projected fiscal deficit of Nu 25.28 billion for FY 2026–2027, setting the stage for continued debate on balancing development spending with long-term fiscal sustainability.

Sherab Dorji, Thimphu

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