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Fiscal Space for Achieving the Millennium Development Goals and Implementing the Tenth Plan in Bhutan

The paper addresses the issue of financing the achievement of the Millennium Development Goals in a sustainable manner in a small, low income and landlocked country, the example being Bhutan. The analysis shows that although mdg financing is nested within the plan outlay, significant efforts will be needed to ensure adequate resources for financing the plan and smoothening the wide year-to-year fluctuations in revenues and expenditure flows. The paper explores the availability of additional fiscal space using the fiscal diamond framework to identify policy and institutional reforms needed for raising revenues from tax and non-tax sources, improving productivity from public spending through reprioritisation, accessing external grants and borrowing from domestic and foreign sources.

SPECIAL ARTICLE

Fiscal Space for Achieving the Millennium Development Goals and Implementing the Tenth Plan in Bhutan

M Govinda Rao, Anuradha Seth

The paper addresses the issue of financing the achievement of the Millennium Development Goals in a sustainable manner in a small, low income and landlocked country, the example being Bhutan. The analysis shows that although MDG financing is nested within the plan outlay, significant efforts will be needed to ensure adequate resources for financing the plan and smoothening the wide year-to-year fluctuations in revenues and expenditure flows. The paper explores the availability of additional fiscal space using the fiscal diamond framework to identify policy and institutional reforms needed for raising revenues from tax and non-tax sources, improving productivity from public spending through reprioritisation, accessing external grants and borrowing from domestic and foreign sources.

M Govinda Rao (mgr@nipfp.org.in) is with the National Institute of Public Finance and Policy, New Delhi. Anuradha Seth (anuradha.seth@undp.org) is with the Regional Centre for Asia and the Pacific, United Nations Development Programme.

B
hutan, a small Himalayan kingdom with just over 6,40,000 people has been making rapid strides in economic progress and human development. The country has recorded impressive growth rates to average over 7% per annum during the last two decades and during the Ninth Plan period (2002-07), the growth rate was over 9%. This has transformed the economy from being one of the least developed, to one with a per capita income of $1,200. There has been a steady improvement in human development indicators as well. From being a low human development country with a human development Index (HDI) value of 0.550 in 1998, the country progressed to a medium country with a value of 0.600 in 2006. Among the south Asian countries, only India and Sri Lanka have marginally higher v alues of HDI.

1 Introduction

In this small, landlocked country with limited market penetration, economic growth has mainly been based on the exploitation of natural resources, more particularly, generation and export of hydropower. The narrow basis of growth has been capital intensive and has led to uneven distribution. However, the government has used the resources generated through these activities to spend on social infrastructure to make impressive progress in h uman development. The government is fully committed to achieving the Millennium Development Goals (MDGs) by mainstreaming it into the Tenth Plan (2008-13).

Mainstreaming the MDG with the Plan requires making a d etailed cost estimate for achieving the MDGs, alignment of Plan outlays with MDG needs and working out strategies to raise the required resources. The government undertook a detailed costing exercise to quantify the resource requirements for achieving seven of the eight MDGs, namely, reducing poverty and hunger, securing universal primary education, promoting gender equality and women’s empowerment, reducing child mortality, improving m aternal health, combating the spread of communicable diseases and ensuring environmental sustainability (RGoB 2007a).

This study attempts to quantify the fiscal space needed to achieve the MDGs and identify the measures to finance the MDGs in a sustainable manner. Section 2 briefly outlines the analytical framework employed to determine the potential for expanding the fiscal space. Section 3 summarises the overall financing requirements for achieving MDGs and compares it with the Plan outlay. Section 4 explores the role of domestic revenue mobilisation.

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Section 5 analyses expenditure trends, its consistency with MDG cost estimates, and explores the scope for improving efficiency and expenditure reprioritisation. Section 6 considers the role of official development assistance (ODA) and Section 7 examines the scope for borrowings (both external and domestic). Section 8 deals with the possibility of enhancing fiscal space through p rivate sources (foreign direct investment (FDI), households). Section 9 presents concluding remarks.

2 Mobilising Resources: Analytical Framework

It is very well recognised that inclusive growth requires building capabilities of the poor and disadvantaged sections to empower them to participate in the market in a productive manner. As a rgued by Amartya Sen (1999:86), “poverty must be seen as the deprivation of basic capabilities rather than merely as lowness of incomes”. Capabilities provide freedoms – freedom from hunger and poverty, freedom to work, freedom from increased choice of avocations. Bhutan has been transforming itself into a democratic society and ensuring these freedoms will make this transformation even more meaningful.

Bhutan has tried to align the national planning process with the MDGs. Analysis shows that the country has made impressive strides in human development and it is well on track to achieve most of the MDGs (RGoB and UNDP 2005). Even as the growth of Bhutan’s economy is narrowly based (dependant mainly on the generation and export of hydroelectricity), the government has to broaden the developmental base by spending on education, healthcare and agriculture and rural development to disseminate the benefits to the population as a whole. Nevertheless, achieving the MDGs depends on the ability of the government to release r esources for investment in sectors as reflected in the Bhutan M illennium Development Goals: Needs Assessment and Costing R eport (2006-2015) (RGoB 2007a:103).

The financing strategy for achieving the MDGs entails a comprehensive mapping of potential sources of finance from both public and private sources – though, public spending constitutes a predominant part of spending on sectors impacting on MDGs. The fiscal space diamond is a diagnostic tool that assesses the major sources of “public finance” available to countries (Seth 2007; Chambas et al 2006; World Bank 2007). The four sides of the diamond represent different mechanisms by which fiscal space can be enhanced. These are (i) enhancing domestic revenues from tax and non-tax sources; (ii) increasing official development assistance including grants, concessional loans and debt relief; (iii) reprioritising expenditures, including enhancing their allocative and technical efficiency, and (iv) financing public e xpenditures by borrowing from domestic and international sources.

3 Financing Requirements for MDGs and Investments in the Tenth Plan

Bhutan’s MDGs Needs Assessment Report (2007) estimated that between 2006 and 2015, the country will need to invest approximately Ngultrums (Nu) 113.110 billion ($ 2.5 billion) in 2005 prices to implement interventions identified for achieving the MDGs (Table 1). These estimates represent on average

52 Nu 17,815 ($394) per capita annually or Nu 178,146 ($3,937) per capita for the next 10 years from 2006 to 2015. According to the Report, investment needs are the highest for the social sectors. The investment requirements for the education sector constitute almost a quarter of total investment needs and for health, it is 21.9%. Investment needs for infrastructure (transport and e nergy) are estimated at 26.5% followed by agriculture and rural development (16.6%). Collectively, these four sectors account for 89.4% of total MDG investment needs. The analysis also shows that a lmost 60% of the total investment will be required for r ecurrent expenditures and capital investment requirements will be 40%.

Table 1: Total Resource Needs Estimates for Interventions to Achieve MDGs

(2006-15, Nu million)

MDG Thematic Clusters Total Capital Recurrent Per Cent of
Total
1 Agriculture 18,748.03 4,507.59 14,240.44 16.58
2 Education 27,600.33 2,807.26 24,793.07 24.40
3 Gender 1,343.98 1,343.98 1.19
4, 5, 6 Health 24,794.42 9,910.41 14,884.01 21.92
7 Environment 458.17 183.23 274.94 0.41
8 Water and sanitation 7,366.27 4,017.78 3,348.49 6.51
Cross- cutting Energy 10,820.04 5,332.75 5,487.29 9.57
sectors Transport 19,162.69 16,641.82 2,520.87 16.94
Capacity 2,816.25 1,260.76 1,555.49 2.49
Grand total 113,110.19 46,005.58 67,104.60 100
Percentage 100 40% 60%

Source: RGoB 2007a.

According to Bhutan’s Tenth Five-Year Plan, of the total estimated development outlay of Nu 141.692 billion (RGoB 2008b), Nu 62.06 billion or 43.8% has been allocated for current expenditures and spending on capital investments constitute the remaining (56.2 %). The sector-wise break up shows that over 26% of the allocation is for general administration and another 26% for infrastructure sectors such as energy and transport. The allocation to social sectors is about 22%.

A comparison of the two estimates presented in Table 2 (p 53) indicates that in general, the Tenth Plan outlay is almost 162% higher than the investment requirements for MDG for the comparable period. Of course, plan outlay includes expenditures on s ectors and programmes which are not a part of the MDG costing. Nevertheless, even if only investments in social and economic sectors are considered, the proposed plan investments are higher by 93%. This is true of both current and capital components – the former by 39% and the latter by 177%. Thus, the overall plan

o utlay can more than adequately cover the requirements to achieve the MDGs.

As the MDG financing requirements are nested within the Tenth Plan investment, the MDG financing issues are subsumed under broader issues surrounding the financing of the Tenth Plan itself. The pattern of financing the Tenth Plan, however, shows that the domestic resources can finance just about 46.3% of the total requirements of Nu 65.6 billion, external assistance grants of around Nu 56 billion to help meet its capital expenditures in the Tenth Plan (ibid: 63). The pattern of plan financing shown in Table 3 (p 53) shows that total plan outlay during the Tenth Plan is estimated at over 28% of gross domestic product (GDP) and

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d omestic revenues are expected to contribute just 46% and the remaining resources are supposed to accrue from external grants (19% of GDP) and borrowings.

While the Tenth Plan investment outlays in infrastructure, agriculture and rural development are significantly higher than the corresponding MDG cost estimates, the Plan outlay on social sectors are lower. The shortfall is over 26% in the case of education and about 35% in the case of health and it is particularly marked in the case of recurrent expenditures in both the sectors.

Table 2: Cost of Financing MDGs Compared with Tenth Plan Outlay (Nu million)

decelerate from 25% of GDP in 2008-09 to 22% in 2012-13. For the period as a whole, the ratio is estimated at 22.4% which will be required to finance about a half of the total expenditure including net lending by the government. In contrast, external revenue relative to GDP will continue to increase from 18.2% in 2008-09 to 19.6% in 2012-13. The remaining finance will have to come from internal and external borrowing which is estimated at about 4.5% of GDP for the plan period.

4 Domestic Revenue Mobilisation

Thematic Clusters Expenditure Requirements for MDG Proposed Tenth Plan Outlay Excess of Tenth Domestic resource mobilisation is the most stable and
Current Capital Total Current Capital Total Plan Outlay over MDG reliable method of financing the MDGs. Domestic rev-
Costing enues can be mobilised either from tax or non-tax
Agriculture 6,533.6 2,024.7 8,558.4 6,193.6 7,947.3 14,140.9 65.2 sources. In general, low income countries have low
Education 11,690.7 1,102.2 12,792.9 1,945.8 7,452.0 9,397.7 -26.5 tax-GDP ratios due to the dominance of non-formal
Gender 612.4 0.0 612.4 10.0 57.9 67.9 -88.9 transactions. Further, as the public sector is an impor-
Health 7,113.4 5,220.6 12,334.0 3,570.4 4,469.7 8,040.1 -34.8 tant player in commercial activities, public enterprise
EnvironmentWater and sanitation Energy TransportCapacity building 254.8 1,978.2 2,634.1 1,193.7 794.1 ,175.0 1,617.9 2,418.3 7,958.1 734.2 429.8 3,596.2 5,052.5 9,151.8 1,528.3 * * 3,748.4 12,747.2 1,210.3 * * 4,809.8 16,356.4 5,015.6 * * 8,558.2 29,103.6 6,225.8 Na Na 69.4 218.0 307.4 profit is an important instrument of resource mobilisation. The generation of fiscal space hence entails an understanding of revenue mobilisation from both tax and non-tax revenue sources.
Gen administration * * * 16,203.9 20,791.9 36,995.8 Na Revenue productivity of the tax system depends on
Grand total 32,805.2 21,251.1 54,056.3 62,060.2 79,632.0 1,41,692.2 162.1 a number of factors such as the extent and structure

* denotes that the expenditures are included under other heads. of GDP growth, level and structure of tax rates and the Na – not available. Sources: (1) Tenth Five-Year Plan (Draft) GNH Commission, February 2008. quality of tax administration including the informa

(2) Bhutan Millennium Development Goals: Needs, Assessment and Costing Report (2006-15), November 2007.

tion system. As income levels increase, tax revenues

This is a matter for concern and calls for reprioritisation in plan priorities to achieve the MDGs. Specifically, expenditures on education and health in the Plan will have to be significantly enhanced by r educing the outlay on general administration, transport and to some extent, capacity building. As far as the gender component of the MDGs is concerned, the Plan outlay is spread across several sectors and adequate outlay is available.

The feasibility of financing the MDGs is reinforced by comparing actual expenditures incurred in 2006-07 with the MDG cost estimates. The comparison presented in Table 3 shows that total expenditure in 2006-07 was almost double what was required to spend for MDGs. Both recurrent and capital expenditures e xceeded the MDG cost estimates by a significant margin. In terms of individual sectors, except in the case of recurrent expenditures in the health sector, actual expenditures exceeded the required level. Of course, in the case of energy, a significant volume of i nvestment is made by the corporation and therefore, actual e xpenditure is lower.

The Tenth Plan outlays are estimated at Nu 1,41,692 billion as compared to the MDG investment needs for the Tenth Plan period of Nu 54,056 million. Thus, the plan outlay is higher than the MDG investment needs by 162%. The financing needs of MDG clearly fall within the resource envelope of the Tenth Plan. The shortfall in the outlay from the MDG costing seen in the case of education and health sectors too can be overcome through proper reprioritisation. This, however, does not mean that there are no fiscal challenges. Raising resources for development in a small developing landlocked country based mainly on natural resources present significant challenges.

Table 4 (p 54) presents some important features in the pattern of financing the Tenth Plan. First, domestic revenues are likely to

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are also expected to increase. However, this relationship may not be very strong in many Asia-Pacific countries because a sizeable part of the growth in many of these economies comes from the informal sector which is outside of the formal tax net. It is possible to increase the fiscal space for MDGs by reforming the tax s ystem – both the structure administration.

4.1 Sources of Domestic Revenue

In Bhutan, the government mobilises domestic revenues from tax and non-tax sources (Box 1, p 54). In 2006 of total domestic revenues, 37% was collected from tax revenues and 63% from nontax sources (Table 5, p 55). Direct taxes contributed 23% of total

Table 3: Actual Expenditure Compared to MDG Costing 2006-07 (Nu million)

Public Expenditure MDG Cost Current Capital Total Current Capital Total

Social Sector Education 1,653.97 814.77 2,468.74 1,502.37 297.27 1,799.64

Health 922.35 768.326 1,690.68 1,130.68 221.21 1,351.89

Agriculture and rural development 819.76 668.89 1,488.65 850.864 303.89 1,154.75

Transport and communication (road and bridges) 271.95 2,031.67 2,303.62 1.98 1156 1,354

Energy 48.71 392.89 441.6 393.08 628.50 1,021.57

Good governance and capacity building na na Na 123.20 98.47 221.67

Water and sanitation na na Na 37.65 373.85 611.5

Environment na na Na 1.56 0 1.56

General administration 3,609.75 2,185.44 5,795.19 * * *

Total expenditure 7,636.23 7,529.88 15,166.11 4,041.39 3,079.18 7,516.59

* Not separately given. Na – not available separately. Sources: (1) Bhutan Millennium Development Goals: Needs, Assessment and Costing Report (2006-15), Planning Commission, Royal Government of Bhutan, 2007.

(2) Budget Documents, Royal Government of Bhutan.

domestic revenues and the contribution of indirect taxes was 14.3%. Over 67% of direct tax collections or more than 15% of domestic revenues accrued from corporation income tax. Contri

butions of other major taxes such as business income tax (BIT) and personal income tax (PIT) in domestic revenues were 3.7% and 1.7%, respectively. As far as indirect taxes are concerned, sales tax and excise duty are the two most important ones. In 2006, they respectively, contributed 7.6% and 5.2% of domestic revenues.

The modern tax system in Bhutan is of recent vintage. Prior to 1960, the taxes were collected mainly in kind due to the predominance of an informal economy and the absence of a clearly orchestrated revenue mobilisation policy. With the launch of the Five Year Plan in 1961, taxes were levied on land, business income and consumption. The first major tax reform was in 1989 which was revisited in 1992. In 2000, the Sales Tax, Customs and Excise Act was enacted. In 2001, the Income Tax Act was enacted.

Table 4: Pattern of Financing the Tenth Plan (% of GDP)

2008-09 2009-10 2010-11 2011-12 2012-13 2008-13
Domestic revenue 25.09 23.30 21.85 20.42 22.03 22.39
External revenue 18.24 18.86 19.20 19.52 19.56 19.13
Total revenue 43.33 42.16 41.06 39.94 41.59 41.52
Recurrent exp 22.67 21.69 20.72 19.93 21.31 21.19
Capital exp 25.92 26.81 27.30 27.75 27.80 27.19
Total exp 48.59 48.50 48.02 47.69 49.11 48.39
Net lending -3.48 -2.89 -2.75 -2.55 -2.37 -2.77
Total exp + net lending 45.11 45.61 45.27 45.13 46.74 45.62
Overall fiscal position -1.78 -3.45 -4.22 -5.19 -5.15 -4.10
Financing 1.78 3.45 4.22 5.19 5.15 4.10
Project tied loans -0.71 -0.48 -0.60 -0.30 -0.06 -0.40
Repayment of debt 3.77 3.65 3.83 3.58 3.35 3.62
Project tied ext borrow 3.07 3.17 3.23 3.28 3.29 3.22
Resource gap 2.49 3.93 4.82 5.49 5.21 4.50
Fiscal deficit (% GDP) 1.5 2.78 3.30 3.93 3.75 3.05
Resource gap (% GDP) 2.09 3.17 3.78 4.16 3.79 3.40

Source: Estimated from RGoB 2008a.

Corporate income tax (CIT) is levied at 30% on the net profits of the companies incorporated under the Companies Act, 2000 and registered with the Ministry of Trade and Industry (MTI). There are 65 units registered under the CIT and the most important of them are in the public sector. The BIT is levied on all un incorporated businesses registered with MTI with an investment exceeding Nu 10,000. A lthough there are 10,088 units registered under BIT, the revenue collection is small. Only 10% of the BIT payers are assessed on their actual business incomes and the r emaining 90% pay a presumptive tax based on the factors such as tax paid during the past three years, import-export figures, tax paid by similar units in similar locations and third party i nformation. Personal income tax is collected on income from various sources. The exemption limit for PIT is Nu 10,000 and the tax is levied at four rates ranging from 10% to 25%.

Box 1 Domestic Revenues in Bhutan
Tax Revenue Non-Tax Revenue
Direct Tax t $PSQPSBUFJODPNFUBY t #VTJOFTTJODPNFUBY t 1FSTPOBMJODPNFUBY t 0UIFSUBYSFWFOVF Indirect Tax t 4BMFTUBY t YQPSUUBY t YDJTFEVUZ t *NQPSUEVUZ t 3PZBMUZ t 0UIFSJOEJSFDUUBYSFWFOVF t ENJOJTUSBUJWFGFFTBOEDIBSHFT t $BQJUBMSFWFOVF t 3FWFOVFGSPNHPWFSONFOU departments t %JWJEFOET t 5SBOTGFSPGQSPmUT t *OUFSFTUPOMPBOGSPN corporations t 0UIFSOPOUBYSFWFOVF

Customs duty, sales tax and excise duty are the three important indirect taxes. Bhutan sources a bulk of its imports from I ndia and under a bilateral treaty the imports from India are

e xempt from customs duty. Therefore, in 2006, it contributed just about 1.4% of the domestic revenue. Initially, sales tax was levied mainly on imports from India which were exempted from customs duty. Later on, this has been extended to imports from all countries. In addition, selected domestic goods and services are subject to the tax. The coverage of the tax remains narrow and the poor information system and limited adminis

trative capacity have rendered the base narrow. Excise duty is l evied on alcoholic beverages ranging from 20% to 60%.

Unlike in many other developing countries, non-tax revenues in Bhutan are predominant constituting almost two-thirds of d omestic revenue. A major contribution to revenue comes from the transfer of profits and dividends from various government companies including the Hydroelectric Power Corporation. A lmost 60% of the domestic revenues are generated by the d ividends and profits of government companies and the Hydroelectric Corporation which generates and exports electricity to India is a major contributor. In fact, sharp increases in non-tax revenues in certain years correspond to the commissioning of major hydro electric projects.

4.2 Level, Growth and Composition of Revenues

Table 5 presents the growth rate of revenues from different sources in Bhutan during the period from 1995-96 to 2006-07. The analysis shows a sharp deceleration in the annual growth rate of aggregate revenues from 16% during 1995-2001 to 12% during 2006-07 mainly due to the deceleration in the domestic revenues from about 20% during the first sub-period to less than 12% in the latter. The revenue from foreign sources, by contrast, grew steadily at about 12%. As the GDP growth rate was faster particularly during the latter period, aggregate revenue relative to GDP declined from 43.9% in 1995-96 to 26.7% in 2002-03 before recovering to 38.8% in 2006-07 (Table 6, p 55). In fact, the average revenue-GDP ratio during 1995-2001 was significantly higher than the ratio during 2001-07.

Bhutan’s dependence on external sources is high and this shows large year-to-year fluctuations (Table 6; Figure 1, p 55). Within domestic revenues, the share of non-tax revenue from the generation of power and its export to India is overwhelming and this varies on the basis of commissioning of projects. As a ratio of GDP, domestic revenue declined from 23.9% in 1999-2000 to 18.9% in 2005-06 before increasing sharply to 24.3% in 2006-07, due to the commissioning of the Tala hydropower project. The decline in domestic revenues was due to deceleration in tax revenues, which as a ratio of GDP declined from 10.8% in 1999-2000

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to 9.1% in 2006-07. The non-tax rev- Table 5: Growth Rate of Revenues in Bhutan (% per annum) marginally recovering to 3.8% in
enues too showed a steady decline Revenue Source 1995-96 to 2000-01 to Per Cent of 2006-07. Similarly, revenue from
2000-01 2006-07 Domestic Revenue
from 13.1% in 1999-2000 to 8.7% in Tax revenue* 20.67 11.34 37.38 business tax declined from 1.4% in
2005-06, but the commissioning of Direct tax* 26.00 9.08 23.11 2003-04 to 0.9% in 2006-07. In the
Tala hydropower project increased Corporate income tax 22.63 8.74 15.54 case of personal income tax, wide
the revenues by 6.8 percentage points Business income tax 36.11 6.68 3.65 year-to-year fluctuations are mainly
to reach 15.2% in 2006-07. Personal income tax 44.94 13.78 1.73 due to administrative efficiency. In
During the last decade, the tax- Indirect tax 13.28 15.15 14.26 the case of corporation tax itself, even
GDP ratio increased from 7.5% in Sales tax 18.65 14.94 7.59 in 2000-01, almost 4.57% of the GDP
1996-97 to 10.8% in 1999-2000, but Import duty 34.14 13.54 1.44 was mobilised and reaching that level
thereafter fluctuated between 8.3% Excise duty 5.14 21.10 5.15 itself will enhance the revenue by 0.7
in 2003-04 and 10.5% in 2001-02 Non-tax revenue 19.15 12.13 62.62 percentage points. Similarly, there is
(Figure 2). In 2006-07, it declined by Administrative fees and charges Royalties 12.66 15.76 14.56 13.33 2.13 4.95 considerable untapped potential in
three percentage points to 9.2%. Dividends from other companies 15.19 11.99 2.73 business tax as the prevailing 0.9% of
Thus (i) the tax ratio instead of Dividend from CHPC 13.63 6.22 18.33 GDP is well below the level reached in
i ncreasing with development has Transfer of profits -0.16 22.32 26.57 2001-02 (1.4%). This shows that there
shown a decline, (ii) the tax ratio has Other non-tax revenue -7.66 9.76 0.08 is considerable potential to increase
shown a very high degree of volatility Capital revenue -0.07 32.54 1.74 revenues if a proper structure, admin

from one year to another, and Total domestic revenue 19.79 11.91 100.00 istrative and information systems are Foreign grants 12.08 12.01

(iii) there is considerable untapped put in place.

Total revenue 15.92 11.97

potential amounting to 3-4 percent- It is not just the non-tax revenues

* Growth rates are from 1997-98. age points. Reforms in the tax system Source: Estimated from National Revenue Report, RGoB (various years). that show a high degree of variation could enhance the revenue produc-from one year to another. Among the tivity considerably. taxes, the fluctuations in indirect taxes, particularly from excise High dependence on external sources and large in domestic duty has been very high. While in 2005-06, this source contrib

revenues pose serious problems in planning and implementing uted 2.4% of GDP, in the next year, the contribution was just expenditure programmes including the financing of MDGs. The

Figure 1: Trends in Domestic and Foreign Revenue in Bhutan (% to GDP) ratio of domestic revenues to GDP, after increasing steadily from 45.0 20.2% in 1995-96 to 23.9% in 1999-2000, declined to 18% in

35.0

2002-03. It remained broadly at that level until 2005-06 when it increased sharply to 24.3% following the commissioning of the 25.0 Tala hydroelectric project. Similarly, foreign revenues relative to 15.0 GDP declined steadily from 23% in 1995-96 to 8.6% in 2002-03

5.0

before recovering to 14.5% in 2006-07 (Table 6). In fact, year to year changes were often more than five percentage points to GDP.

Figure 2: Trends in Domestic Revenue in Bhutan (% to GDP) Direct taxes contributed to 23% of domestic revenues or about 25.0 62% of total tax revenues in Bhutan. Among the direct taxes, over-20.0 whelming contribution is from corporation tax which is mainly by 15.0 the state-owned corporations. The revenue from the tax as a ratio 10.0 of GDP declined from 4.6% in 2000-01 to 3.2% in 2004-05 before 5.0 1995-96 1997-98 1999-2000 2001-02 2003-04 2005-06 2006-07 Table 6: Trends in Revenues in Bhutan (1995-2007)

1.25% (Table 7, p 56). The reason for wide variation from year to

Years % of Tax Revenue to GDP % of % of % of Total % of

Direct Indirect Total Non-Tax Domestic Foreign Revenue Domestic year has to be found in the fact that a substantial portion of ex-Tax Tax Tax Rev to Rev to Rev to Revenue

cise duty is from refunds from India and these are very irregular.

GDP GDP GDP in Total

In 2006, for example, these contributed to 38% of excise duty 1996-97 4.4 3.1 7.5 12.6 20.1 19.6 39.8 50.6 collections and this is because, the refunds for 2002 and 2003 1997-98 5.2 4.0 9.2 13.2 22.4 13.4 35.9 62.6 were paid in 2005 and 2006.

1995-96 4.3 4.3 8.6 11.6 20.2 23.7 43.9 46.0

1998-99 4.8 3.2 8.0 14.4 22.4 20.6 43.0 52.1 One possible source of additional revenue is to broad-base the 1999-00 6.1 4.7 10.8 13.1 23.9 17.9 41.7 57.2

sales tax. At present, the sales tax is levied mainly on imports and

2000-01 6.5 3.0 9.5 13.7 23.2 18.5 41.7 55.7

very few domestically produced goods and services. The levy of

2001-02 6.5 4.0 10.5 11.7 22.3 16.4 38.6 57.6

goods and services tax on both domestic production and imports

2002-03 5.7 4.6 10.3 7.8 18.1 8.6 26.7 67.8

at a flat rate of 5% could enhance the revenue substantially. When

2003-04 5.7 2.7 8.3 8.9 17.2 18.3 35.5 48.5

supported by a good information system, this could help in the

2004-05 5.2 4.2 9.4 9.3 18.8 13.5 32.3 58.1

better compliance of PIT, BIT as well as excise duty. However, the

2005-06 5.5 4.7 10.2 8.7 18.9 17.6 36.4 51.8

levy of a comprehensive goods and services tax should be well

2006-07 5.6 3.5 9.1 15.2 24.3 14.5 38.8 62.7 Source: National Revenue Report, RGoB (various years). planned before it is implemented.

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1995-96 1997-98 1999-2000 2001-02 2003-04 2005-06 2006-07 Domestic Revenue Foreign Revenue Total
Tax Revenue Non-Tax Revenue Domestic Revenue

Thus, suggested reforms in the tax system – both in direct and indirect taxes – can create an additional fiscal space by about 4%-5% of GDP. Indeed, these cannot be achieved overnight and, to be successful, they have to be well planned and implemented. Yet, expanding the base of sales taxes through the GST and strengthening the administration and information system and

Table 7: Trends in Indirect Tax Revenue (% of GDP)

Sales tax Import/Export Tax Excise Duty Other Indirect Taxes Indirect Tax
1995-96 1.42 0.41 2.12 0.36 4.31
2000-01 1.70 0.45 0.65 0.21 3.02
2001-02 1.57 0.47 1.94 0.02 4.00
2002-03 1.65 0.44 2.49 0.01 4.59
2003-04 1.69 0.52 0.44 0.01 2.66
2004-05 1.76 0.72 1.75 0.01 4.23
2005-06 1.81 0.43 2.40 0.01 4.66
2006-07 1.85 0.35 1.25 0.02 3.47

Source: Budget Documents, RGoB, various years.

e ffective e xchange of information between the various tax departments can be a highly successful revenue mobilisation strategy.

Non-tax revenues in Bhutan comprise mainly of dividends from state-owned enterprises and transfer of profits. A bulk of the dividend accrues from hydro power corporations. The transfer of profits is mainly from the Royal Monetary Authority (RMA) and profits from lotteries. Sometimes, the profits from newly commissioned enterprises which are yet to be segregated into corporate income tax and dividends are included under this. In 2006-07, for example, profits of the newly commissioned Tala Hydro Power Authority (THPA) amounting to Nu 737 million or about 1.8% of GDP was included under this head.

5 Efficiency and Pro-Poor Expenditure Switching

The scope for enhancing fiscal space through pro-poor expenditure switching generally appears to be considerable. However, it is difficult to specify ex ante the size of the potential gains from expenditure reallocation and the sectors where efficiency can be improved. Gupta et al (1997) demonstrate that the marginal benefits of education and health spending decrease rapidly in situations where the initial level of spending is high. This implies that governments should exercise caution before expanding government expenditure on education and health when the initial level of spending is already high.

Expenditure switching and efficiency-enhancing reforms can create fiscal space through a reallocation of resources from lower priority to higher priority (sub) sectors or through productive efficiency gains. The potential for additional fiscal space varies with development for three related reasons: (i) the scope for expenditure switching is determined by the size of the public sector; (ii) production inefficiency can be addressed through longterm capacity development programmes that limit low income countries’ ability to secure fiscal space through active expenditure switching policy over the short run; and (iii) addressing p olitical economy constraints to reforms is critical to improve distributive inefficiency (UNDP 2007).

Improvement in the effectiveness of public expenditure calls for reforms in both policies and institutions. Policy reforms help to direct expenditures according to the envisaged priorities.

56 R eforms in institutions help to smoothen the processes and help in the implementation and monitoring of expenditure programmes. They are also necessary to ensure greater accountability.

5.1 Trends in Public Expenditures

In keeping with the trends in revenues, there has been a sharp deceleration in the annual growth rate of expenditures from 20% during 1995-2000 to 10% during 2001-06 (Table 8). Although the growth of both current and capital expenditures decelerated, the decline was much sharper in the case of the latter, from almost 23% during the first sub-period to 8.3% in the second. The sharp decline in capital expenditures is a matter of concern though in part, this is due to the corporatisation of hydroelectric projects which are financed outside the budget.

The Public Finance Act (PFA) approved by the National Assembly in June 2007 attempts to improve the public finance management system in the country. The Act demonstrates the commitment of the government to sustainable and transparent fiscal management. This commitment is further enunciated in the draft constitution (to be adopted in 2008), which seeks to provide a dditional improvement in public finance management by f urthering the fiscal decentralisation process by devolving fiscal powers from the central to district level administration.

6 Official Development Assistance

Generally, financing needs for the MDGs call for a significant i ncrease in ODA. Equally important is the need to address issues of aid predictability and earmarking of resources by donors. I ndeed, effective implementation of the Tenth Plan will require aid flows to be stable and predictable and development partners can assist with this by making multi-year aid commitments. This is important because large and unexpected shifts in the volume of aid can disrupt the planning process and macroeconomic management of the economy and erode the effectiveness of aidfinanced expenditures.

Traditionally, India has been Bhutan’s principal donor for the development programme. The first two five-year plans (since 1961) were wholly implemented with financial and technical assistance from the government of India. From the Third Plan onwards, d evelopment assistance from other bilateral and multilateral agencies augmented the support from India. Currently, Bhutan receives external assistance from as many as 15 multilateral

o rganisations, 19 individual donor countries (bilateral assistance),

Table 8: Actual Expenditure Compared to Medium-term Expenditure Framework (MTEF) (2002-03 to 2006-07)

Sectors Actual Expenditures Per Cent of MTEF Per Cent of Per Cent of Mn Nu Total Mn Nu Total Actual to MTEF

Health and education 14,544.70 23.84 16,627 23.75 87.48

Agriculture 5,691.42 9.33 7,154 10.22 79.56

Human settlement 3,679.50 6.03 4,079 5.83 90.21

Communications and roads 8,032.11 13.17 8,135.5 11.62 98.73

Energy 2,927.90 4.80 6,360 9.09 46.04

General services 22,844.02 37.45 19,036 27.19 120.00

Debt services 1,849.01 3.03 3,842.29 5.49 48.12

Others 1,432.88 2.35 4,764 6.81 30.08

Total 61,001.54 100.00 70,000 100.00 87.15

Sources: (1) RGoB, 2004.

(2) Budget Documents of RGoB, various years.

august 29, 2009 vol xliv no 35

four financial institutions (Asian Development Bank, World Bank, International Fund for Agricultural Development and The Kuwait Fund for Arab and Economic Development) and some non-governmental organisations (RGoB 1996, I: 211).

Types of assistance received by Bhutan are: technical assistance, budgetary support, investment in projects, food aid and loans. Most of the aid that Bhutan receives (almost 80%) is on grant terms, with the balance in soft loans that have a high grant element.

The Department of Aid and Debt Management (DADM) under the Gross National Happiness Commission (GNHC) is responsible for managing external borrowings, the Debt Management Division under the Department of Public Accounts (DPA) within the ministry of finance, DPA is responsible for managing external debts. According to the Debt Portfolio Review and Debt Sustainability Analysis Report 2007 issued by the DPA, the government of India is by far the largest donor holding a major chunk of debt stock at 61%, while multilateral agencies hold 28% and other b ilateral donors hold 11% (RGoB 2007d: 29).

Generally, Bhutan receives loans for capital investment. Table 9 shows the kinds of projects funded by development partners.

Table 9: Sector-wise External Assistance (Loan) Received during the FY 2006-071

(Nu in million)

Lender Project Cash Kind Total %
ADB Rural electrification 93.277 93.277 9.1
Basic skill development 65.504 65.504 6.4
Road and urban development 13.077 13.077 1.3
ADB total 78.581 93.277 171.858 16.8
Austrian Basochu hydro power project 26.974 26.974 2.6
Danida Rural telecom network 303.273 303.273 29.6
IFAD Agriculture marketing development 124.225 124.225 12.1
World Decentralised rural development 53.76 53.76 5.3
Bank Education 312.475 312.475 30.5
Rural access and urban development 30.895 30.895 3.0
World Bank total 397.13 - 397.13 38.8
Grand total 599.936 423.524 1023.46 100.0

Source: (RGoB 2008a).

Over the years, there has been an increasing tendency to substitute concessional loans for grants (Osmani et al 2007).

The RGoB receives international assistance (grants) (a) in cash including programme and project tied grants, and (b) in kind. During the financial year 2006-07, the RGoB received a total grant amounting to Nu 6,000 million and this constituted 33% to the total revenues or 14.5% of GDP. The grant in cash amounted to 84% and in kind 16% of the total receipts, respectively. It is also seen that the levels of foreign grants to Bhutan are much lower during the period from 2001-o2 to 2006-07 than during 1995-96 to 2000-01.

From the viewpoint of financing MDGs, it is important that at least the present level of foreign grants will have to continue to keep the borrowing at a sustainable level. During the last five years, on average, foreign grants were less than 16% of GDP whereas, the pattern of plan financing envisaged for the Tenth Plan assumes 19.1%. The plan financing table assumes a financing gap of 4.5% of GDP on an average which has to be covered through borrowing from domestic and foreign sources. Thus, e ither the prevailing level of foreign grants will have to continue

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august 29, 2009 vol xliv no 35

or an additional 4% to 5% revenue will have to be generated from domestic sources – tax and non-tax, in order to finance the plans in a sustainable manner (Figure 3).

Figure 3: Budgetary Balance as of GDP (%) 10

Budget balance inc grants

1988 1990 1992 1994 1996 1998 2000 2002 2004 0 -10 -20 Budget balance exc grants

-30

7 External and Domestic Borrowings

The outstanding debt of Bhutan at the end of June 2007 is estimated at $820.85 million in nominal terms which is more than 100% of GDP. The present market value of outstanding debt is e stimated at $993 million. The domestic component of this is just 7.4% and the remaining 92.6% is external. Of the total loans, 66% is from India, other bilateral loans constitute 7% and the remaining 20% is multilateral loans. In other words, almost 61% of debt is rupee denominated, special drawing right (SDR) loans constitute 28% and euro loans account for 11% of outstanding loans.

Detailed analysis of debt in Bhutan shows that an overwhelming proportion of the loans – 66% of the present value of debt – has been contracted for the energy sector borrowed from India. The servicing of these loans is matched by revenues generated from the export of electricity to India and this does not contribute to debt distress. The debt sustainability analysis of the ministry of finance shows that after excluding the “enclave projects,”2 Bhutan passes the sustainability test comfortably and public debt remains within the sustainable threshold over the next decade.

The RGoB has adopted a conservative fiscal policy and has consistently restricted the fiscal deficit at lower than 5% of GDP. The pattern of plan financing for the Tenth Plan shows that the average financing gap is estimated at 4.5% and fiscal deficit at just about 3%. According to the National Budget Report (2007), the government’s policy emphasises the maintenance of sound public finance by adopting a budget that attempts to: (i) avoid at least operating deficits; (ii) maintain the overall budget deficit to a maximum of 5% of GDP; (iii) cap the pay budget at sustainable ratios of current expenditures; (iv) keep outstanding debt at sustainable levels; (v) keep external debt service to exports ratios at low levels; (vi) maintain the momentum of investment in the socio-economic sectors; and (vii) invest in industries with potential for significant revenue and employment generation. Given the nascent state of financial markets in Bhutan, the scope for domestic borrowing is fairly limited. Currently, domestic debt is relatively small as compared to external debt. During the financial year ending June 2007, domestic borrowing was Nu 1,856.28 million. Of this Nu 1,753 million was borrowed for paying the cost of one aircraft for Drukair. Domestic lenders are the National Pension and Provident Fund and the Bhutan Health Trust Fund.

8 Mobilising Finance from Non-Public Sources

So far, the discussion on enhancing fiscal space has focused on identifying sources of public finance. However, the role of the private sector can be important in financing development and should be leveraged since contributions from the private sector can lower the investment burden of the public sector.

8.1 Foreign Direct Investment and Other Private Flows

Private capital flows include commercial flows (portfolio investment, bank lending and FDI) and non-commercial flows like m igrant workers’ remittances. The foreign investment is looked upon as providing a beneficial boost to private sector development and industrialisation, through easier access to capital, technology and markets. It is also expected to contribute to the Gross National Happiness, through creation of additional economic benefits, in ways, which are consistent with the kingdom’s goal of preserving its environmental and cultural ethos. The broad

o bjectives of encouraging foreign direct investment in the country are to: (i) support private sector development; (ii) generate employment; (iii) facilitate skill development; (iv) promote capital inflow; (v) foster transfer of technology; (vi) expand market a ccess and international trade; (vii) enhance convertible foreign exchange earnings; and (viii) broaden potential comparative a dvantages. These will be administered by imposing on foreign investors a minimum investment size, so that there is no foreign competition for cottage and small enterprises; integrating sector policies and priorities and adopting comprehensive FDI rules and regulations. These rules and regulations are applicable in the manufacturing and service sectors including fi nancial sectors.

In the manufacturing sector, the minimum size of investment (total project cost) is $1 million, of which the foreign investor can hold up to 70% of the equity. The minimum size of investment (total project cost) for activities in the services sector is $500,000, of which foreign investor can hold up to 70% of the equity.

All foreign exchange transactions must be routed through the normal banking channels. There will be no restrictions on local borrowing by foreign investors in Bhutan. The legislations such as the Sales Tax, Customs and Excise Act of the Kingdom of B hutan, 2000 and Income Tax Act of the Kingdom of Bhutan, 2001 and amendments thereto shall apply to FDI.

At present, the government is revising its policy on FDI and private capital flows. This is being done in the context of formulating a revised trade and industry policy. According to the government, financing for the Tenth Plan will not be affected in any meaningful way on account of private capital inflows or significant increases in FDI in the medium term.

8.2 Household Financing

It was noted earlier that some types of user fees paid by households go directly to the government budget. However, there are some categories of user fees (water charges, electricity charges) that are not routed through the government budget – yet, these charges serve to finance some of the MDGs. It is these latter charges that are to be considered in the discussion on household financing for the MDGs.

58

Estimating the contribution of households for financing the MDGs requires that cost-recovery programmes be designed in ways that do not impose user fees for poor households. In other words, the design of cost-recovery programmes should be based on the following two principles:

  • (i) User fees do not contribute to the cost of primary school e ducation, adult literacy programmes, improving gender equality, basic healthcare, nutritional interventions, and transport i nfrastructure.
  • (ii) Richer households bear some of the cost for agricultural interventions (especially in food security, agro-processing and live-stock), secondary school education, energy provision, and water supply and sanitation.
  • In Bhutan, health and education services are publicly financed and free for most households. No policy changes are envisaged that will alter this in the medium term.

    9 Policy Recommendations and Conclusion

    The RGoB has adopted the MDGs as a development strategy and has attempted to align the five-year plans to this effect. It has made considerable progress in economic conditions and in empowering people through human development and is well on track to achieving most of the MDGs. The outlay for the Tenth Plan is significantly higher than the required expenditures for MDG as assessed in the costing estimates. Thus, financing needs of MDGs are nested in the Tenth Plan outlay and therefore, finding the fiscal space for MDGs is essentially an exercise in plan financing.

    The pattern of financing the Tenth Plan shows that there is a resource gap of about 4.5% of GDP. Realising the revenue targets indicated in the Plan financing table and keeping the uncovered resource gap at a sustainable level are important challenges faced in MDG financing in the medium term.

    It must, however, be noted that the Plan outlay is not merely concerned with MDG financing and includes several additional sectors. However, the fact that the outlay exceeds the MDG c osting by over 160% essentially implies considerable reprioritisation. Reprioritisation is necessary also because the plan outlay on education and health sectors fall considerably short of MDG costing estimates. The shortfall is over 26% in the case of education and about 35% in the case of health. Furthermore, the shortfall is particularly marked in the case of recurrent expenditures under both education and health sectors. Therefore, achievement of MDGs would call for reprioritisation in plan priorities towards education and health sectors by compressing outlay on general administration and to some extent transport.

    One of the major shortcomings of the financing system in B hutan is the high degree of volatility in the revenues. High dependence on external revenues and irregular excise refunds from government of India are the major reasons for large year to year variations. However, in the medium term, continued sourcing of external revenue will be necessary to finance the MDG needs. E xternal donors will have to continue to support the Royal G overnment of Bhutan through grants and concessional assistance at the prevailing level.

    Additional resource mobilisation from the tax revenues will r equire significant reforms on both the structure and administration

    august 29, 2009 vol xliv no 35

    of the tax system. In the case of PIT, improvement in revenue collection will have to be achieved both by reforming the structure and by streamlining administration. Indeed the prevailing exemption limit for the tax is extremely low (Nu 10,000). There is a case for increasing that limit to Nu 100,000. This, while leaving out a large number of assessees, will not reduce tax collection much and reduce administrative burden. The way to enhance revenue productivity is by streamlining administration including instituting the information system.

    The base of the sales tax is narrow and broadening it could e nhance revenue productivity and ring in greater stability to revenues. At present, the tax is levied on imports and a few domestic goods and services. The coverage of commodities on domestic production is extremely narrow and value added at subsequent stages is not included in the tax base. Reform of sales tax system should proceed by levying a general goods and services tax at a uniform rate of 5% on all goods and services, domestically p roduced as well as imported, with exemptions on unprocessed food articles. In addition, sumptuary/carbon items can be s ubjected to a separate extra tax.

    The exemption limit for the payment of goods and services tax can be kept at turnover level of Nu 500,000 and dealers up to a turnover Nu 2.5 million could pay a simplified tax at 1% of their turnovers and can be asked to keep simplified accounts without tax credit and with provision to voluntarily opt for regular value added tax (VAT) dealership. It is also important to institute computerised information system and exchanging the information system with other tax departments could significantly increase revenues by improving tax compliance. The information collected from goods and services tax (GST) should also be usefully employed to administer the BIT.

    The attempts by the RGoB to introduce two-year rolling budget and Medium Term Expenditure Framework (MTEF) have helped to enhance efficiency, but much remains to be done to operationalise the MTEF in different sectors. A comparison of the MTEF e xpenditures with actual expenditures for the period from 2002-03 to 2006-07 shows that there was a significant shortfall in actual expenditures from MTEF in respect of both aggregate expenditures as well as in some important social and economic sectors. Nevertheless, the attempt has helped to plan and implement expenditure programmes in different sectors, avoid seasonality and make the spending pattern smoother.

    Although on the basis of aggregate volume of debt, Bhutan may be considered to be a debt stressed country, a detailed debt sustainability analysis shows that after excluding the enclave projects, Bhutan passes the sustainability test comfortably and public debt ratios remain within the threshold throughout the next decade. The RGoB has been careful in adopting a conservative fiscal policy and has consistently restricted the fiscal deficit at lower than 5% of GDP. The pattern of plan financing for the Tenth Plan also shows that the average financing gap is 4.5%.

    There is considerable scope for augmenting resources for fi nancing MDG related expenditures by creating an enabling e nvironment for private investments – particularly foreign i nvestment in a strategic manner. It may also be necessary to augment resources by charging fees on the households for consuming some of the public services – particularly those that benefit r elatively better off sections of society and those which are of non-merit good nature.

    Although the MDG financing needs are covered within the Tenth Plan outlay, and MDG financing pattern is well within the realm of feasibility, reforms are necessary in policies and institutions both to mobilise larger volume of resources and to improve efficiency in public service delivery. Reforms in the tax system as indicated in this report could help to enhance domestic revenues significantly. Much remains to be done to improve expenditure management and control systems. Further, there is considerable scope for the participation of private sector in supplementing the government efforts to provide public service with significant i mpact on MDGs.

    Notes

    1 The direct disbursement from GoI for the Tala h ydropower project (THPP), which is a turnkey project, is excluded from this statement. However, it is included in the statement of outstanding loans where actual outstanding debt of the g overnment is ascertained.

    2 Enclave projects are those projects that are e xpected to become self-financing once brought on-stream such as the energy sector loans financed by government of India.

    References

    ADB (2007): “Kingdom of Bhutan: Strengthening Public Financial Management”, Asian Development Bank: 20.

    Chambas, Gerared et al (2006): “Assessing Fiscal Space in Developing Countries”, Concept paper commissioned by UNDP, CERDI.

    Gupta, Sanjeev, K Honjo and M Verhoeven (1997): “The Efficiency of Government Expenditure: Experiences from Africa”, IMF Working Paper 153.

    Osmani, S R, B B Bajracharya et al (2007): The Macroeconomics of Poverty Reduction: Case Study for Bhutan, UNDP, Thimpu.

    RGoB (1996): Eighth Five-Year Plan (1997-2002), Planning Commission, Thimphu (Thailand: Keen Publishing Co), I: 211.

    – (2004): “Poverty Reduction Strategy Paper: A

    Economic Political Weekly august 29, 2009

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    Cover Note to the Ninth Plan Main Document”, D o Planning, MoF: 57. RGoB (2006): Annual Audit Report 2006, R A Authority, RAA.

  • (2007a): Bhutan Millennium Development Goals: Needs Assessment and Costing Report (2006-2015): GNH Commission, GNHC.
  • (2007b): National Budget: Financial Year 2007-08, MoF, Thimpu.
  • (2007c): Public Finance Act of Bhutan, Dept of Public Accounts, MoF, Thimpu.
  • (2007d): Public Debt of Bhutan for the Year Ended June 2007: Debt Portfolio Review and Debt Sustainability Analysis, Debt Management Division, Department of Public Accounts, MOF.
  • (2008a): Annual Financial Statements of the Royal
  • For the Attention of Subscribers and Subscription Agencies Outside India

    It has come to our notice that a large number of subscriptions to the EPW from outside the country together with the subscription payments sent to supposed subscription agents in India have not been forwarded to us. We wish to point out to subscribers and subscription agencies outside India that all foreign subscriptions, t ogether with the appropriate remittances, must be forwarded to us and not to unauthorised third parties in India. We take no responsibility whatsoever in respect of subscriptions not registered with us.

    MANAGER

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    Government of Bhutan for the Financial Year ended 30 June 2007, D o B a Accounts, MOF.

    – (2008b): Tenth Five-Year Plan (2008-2013), Draft, Vol 1, Main Document, GNH Commssion, Bhutan. RGoB and UNDP (2005): MDG Progress Report for Bhutan (Thimpu: Ministry of Planning). Sen, Amartya (1999): Development as Freedom (New York: Alfred A Knopf).

    Seth, Anuradha (2007): “National Financing Strategies for Achieving the Millennium Development Goals”, Discussion Paper, Regional Centre for Asia Pacific (Colombo: UNDP).

    World Bank (2007): Fiscal Policy for Growth and Development: Further Analysis and Lessons from Country Case Studies, Report of the Development Committee (Washington DC: World Bank).

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