COUNTRY BACKGROUND - Gross National Happiness Commission

Table 2.4 Government Expenditures 1987/88-1991/92
Financing of ExpenditureFinancing of Expenditure
Economic Performance
2.16 The main features of public sector finance during the 1980s were:
(a) With the emphasis on investment in the necessary infrastructure for the development of productive sectors,
the ratio of public expenditure relative to GDP was high at 41%;
(b) Although the Government was able to increase domestic resource mobilisation from the Fifth Plan onwards
this was largely the result of increases in public enterprise profits. Taxation contributed only 28% to
domestic revenue in 1989/90. The majority of the population remained in the traditional subsistence
economy, limiting the potential for collection of taxes in cash. Labour taxes and community labour
contributions to construction of schools etc have meant that the rural population has made some
contribution to the cost of infrastructure provision. Taxation is discussed further in Chapter 8 on Fiscal
and Monetary Policy.
(c) A large gap continued between domestic revenues and RGOB expenditures, but as electricity exports from
Chhukha began, domestic revenues grew faster than expenditures. It was therefore necessary to depend
on external financing for a large proportion of the budget, as shown in Figure 2.3.
Aid FlowsAid Flows
1987/88 1988/89 1989/90 1990/91 199
Category Code no. (12/15) (budget) (bu
Discretionary Current Expenditure 594.890 805.764 854.499 794.751 669
Personal Emoluments
Operating Costs
Grants and Subventions
[01-03]
[05-19]
[21-24,04]
237.470
302.542
54.878
394.456
327.850
83.457
395.101
381.855
77.543
373.998
352.705
68.048
Capital Expenditure 677.300 902.631 595.804 865.909 551
Basic
Public Investment
[41-61]
[62,73]
627.031
50.269
567.463
335.168
589.358
6.446
865.909
0.000
Non-Discretionary Expenditure 83.154 63.183 155.509 103.018 144
Retirement benefits
Debt service
[25]
[31-33,75]
24.205
58.950
6.341
56.842
9.435
146.074
5.510
97.508
Lending [71,72] 94.759 71.643 27.158 6.136 4
TOTAL 1450.104 1843.221 1632.971 1769.815 1370
CPI deflation factor (Dec. annual) - assumes 10% inflation to
Dec. 1991.
Source: Department of National Budget and Accounts.
Note: 1987/88 was a 15 month fiscal year, which the table adjusts to 12 months' equivalent.
2.17 While the First and Second Five Year Plans were financed almost entirely by the Government of India,
from the Third Plan onwards other donors began to provide aid to Bhutan. Further details of aid flows and RGOB
policy are described in Chapter 9. Until 1987/88 grants from India exceeded domestic revenues, but by 1989/90
domestic revenues amounted to more than the total of grants from all sources, as shown in Figure 2.3.
2.4. At the same time, Government expenditure continued to expand at such a rate as to result in large overall
budget deficits which became increasingly difficult to finance without creating macroeconomic instability. The
financing of expenditure is summarised in Table 2.5.
325
258
7
84
510
40
7
136
1.000 0.912 0.841 0.768 0