BHUTAN

Bhutan is a Democratic Constitutional Monarchy, as per the country’s 2008 Constitution. The head of state is the King of Bhutan, and executive power is exercised by the Council of Ministers (Lhengye Shungtsog), headed by the Prime Minister (Article 20 of the Constitution of the Kingdom of Bhutan) and composed of Cabinet Ministers appointed by the King, based on the recommendation of the Prime Minister. The nominees must be elected members of the National Assembly. The country has a bicameral parliament, with the National Assembly (Gyelyong Tshogdu), composed of 47 members, and the National Council (Gyelyong Tshogde), which consists of 25 members, one for each district and five appointed by the King.

Local autonomy is acknowledged in Article 22 of the 2008 Constitution, which states that “power and authority shall be decentralised and devolved to elected local governments.” The country has its own development philosophy based on Gross National Happiness, which promotes good governance at all levels, including at local government level, based on indicators such as political participation, political freedom, service delivery and government performance. Local governments are administered by the Department of Local Governance, established in 2009 under the Ministry of Home and Cultural Affairs.

Decentralisation in Bhutan started in 1953 with the institution of the first National Assembly of Bhutan. Then, district development committees were created in 1981, followed by block development committees in 1991. The Local Government Act 2009 and Amendment Act 2014 have deepened decentralisation by providing an overarching legal framework for local governments, leading to the establishment of 20 elected districts (dzongkhags) at regional level and 205 village blocks (geok) at municipal level. In addition, four self-governing municipalities were created in 2011. Subnational governments in Bhutan can enact rules and regulations in line with national law, as established by the Parliament. Currently, decentralisation is high on the country’s agenda, as reflected in the objective of its 12^th Five-Year Plan for 2018-2023 “Just, Harmonious and Sustainable Society through enhanced Decentralisation”. A consolidated decentralisation policy has been drafted in August 2019, and is now in the process of being finalised, together with an amended Local Government (Amendment) Bill 2020. Bhutan will be graduating from the list of Least Developed Countries (LDC) by 2023.

Under the supervision of the Gross National Happiness Commission (GNHC), subnational governments in Bhutan are required to produce Five-Year Plans (FYP) since 1961, which are planning documents that outline the socio-economic development priorities and programmes to be implemented over a period of five years. The FYP must include National and Local Key Results Areas (NKRA/LKRA) which consist of overall objectives to overcome poverty and reduce inequality across the country. Subnational FYP must be in line with the national FYP. While formulating their Five-Year Plans (and annual plans), subnational government are required, since the 9th Five-Year Plan (2002-2007), to use a bottom-up, decentralised planning process. This means that the development priorities of every blocks are identified first by the communities, at the municipal level.

Subnational governments have three main collaborating platforms: the biennial Dzongkhag Yargay Tshogdu (DT) and Gewog Yargay Tshogchung (GT) Chairperson’s conference, the biennial GAOs symposium, and the Annual Districts Conference.

TERRITORIAL ORGANISATION
Municipal Level [1]	INTERMEDIATE LEVEL	REGIONAL LEVEL	TOTAL NUMBER OF SNGs (2021)
205 Village blocks (Gewogs) + 4 Class-A municipalities (“Class A” Thromde)		Districts (Dzongkhag)
Average municipal size: 3 692 inhabitants
209		20	229

Note: The capital city of Timphu is counted twice, both as a District and as a Class-A Municipality

[1] Name and number of sub-municipal entities: 1 044 Class B Municipalities (Class B Thromdes and Yenlag Thromdes) + Villages (Chewogs)

OVERALL DESCRIPTION: Bhutan has a two-tier subnational government system, with districts at the regional level, and village blocks and class-A self-governing municipalities at the municipal level. There is also a sub-municipal level composed of Class-B municipalities (Class B Thromdes and Yenlag Thromdes) and villages (see below), which are not self-governing entities. In the past, in addition to districts and councils, Bhutan was also divided into four administrative zones (dzongdeys), now repealed.

REGIONAL LEVEL: Bhutan has 20 districts at the regional level, including the capital-city, Thimphu. The role of districts is to guide and support their constituent gewog administration and implement the decisions of the District council. Districts are headed by district officer (Dzongda) and a magistrate, appointed by the central government, and governed by Districts councils (Dzongkhag Tshogdu). District councils are composed of the district officer, and elected representatives from municipalities and village blocks at the lower level (Gup and a Mangmi).

Thimphu is the most populous district (concentrating around 19% of total population) and Gasa is the least populous (0,5% of total population). The districts are divided into 15 administrative sub-districts for administrative purpose (Dungkhag). Poverty rates vary across districts, reaching up to 33% of the population in the district of Dagana, against 0,3% and 0,6% in the districts of Paro and Thimphu, respectively, in 2017.

MUNICIPAL LEVEL: Bhutan has two distinct forms of municipal governing bodies: 205 village blocks, and four “Class A” municipalities. The Class A municipalities include the municipalities of Thimphu, Gelephu, Phuentsholing and Samdrup Jongkhar. Village blocks are governed by block councils (Gewog Tshogde), subordinate to the district council. Block councils are headed by a head (Gup) and deputy (Mangmi), both directly elected, and between five and eight democratically elected officials from surrounding villages (Tshogpas). There is also a Gewog Administrative Officer, appointed by the central administration in each block, to support the local government in planning, implementing and monitoring local development. Finally, “Class A” Municipalities (Thromdes) are governed by municipal councils (Thromde Tshogde), headed by an elected Chairperson (Thrompon).

All representatives serve five-year terms. The first local elections took place in 2011 to elect the representatives of the 205 village blocks and 4 class-A municipalities. Recent studies highlight that the representation of women in local government bodies remains very low, accounting for 1% of elected heads of counties and 12% of deputy elected heads.

Village blocks (Gewogs) are further divided into villages as basic electoral precinct (Chewogs) and “Class B” Municipalities for administrative purpose, at the sub-municipal level.

The classification of municipalities as “Class A” or “Class B” is carried out in consultation with the National Land Commission Secretariat (NLCS), the concerned local authority, and landowners. The classification of a municipality as “Class A” is based on the following criteria: total population, population density, total area, share of population dependent on non-agrarian resources, revenue available for the maintenance of public services, and trade and commerce significance. Municipalities that do not comply with those criteria are classified as “Class B” (Yenlag Thromdes) and are administered directly either by the District Administration or Village Block Administration, as decided by the government. In 2013, the new Parliament had planned on establishing 15 additional “Class A” Municipalities, but this process has been on hold following a Supreme Court order in 2016.

The allocation of responsibilities across levels of government is based on the Division of Responsibilities Framework (DoRF), which was instituted in 2010 and revised in 2012. The DoRF aims to clarify the roles of the various levels of government, including central government, districts, blocks and “Class A” municipalities, according to the principles of subsidiarity and responsiveness. It includes 20 broad responsibilities, assigned along five multi-dimensional attributes (i.e. who will regulate, finance, plan, budget and supervise, and implement and deliver). Even though the assignment of responsibilities distinguishes between the various types of subnational governments, in practice responsibilities tend to overlap due to the small size and limited capacities of subnational governments. In addition, due to their limited own source revenue, subnational governments are mainly acting on behalf of the central government when ensuring their functions.

Subnational governments in Bhutan are mainly in charge of areas related to socio-economic development. They were devolved new responsibilities with the 12^th FYP in 2012, including schools’ maintenance, farm roads, local connectivity roads, irrigation, as well as strengthening climate mitigation and adaptation measures. They are also in charge of preservation and promotion of culture and traditions, through the maintenance of tangible cultural heritage sites, and promotion and preservation of traditional songs, dances and local festivals. The Local Development Planning Manual (2013) was designed to assist subnational governments in planning, implementation, monitoring and evaluating public policies.

Main responsibility sectors and sub-sectors
SECTORS AND SUB-SECTORS	Regional level	Municipal level
1. General public services (administration)	Own general administration	Own general administration
2. Public order and safety
3. Economic affairs / transports	Roads (inter-blocks) ; bus stops, parkingLivestock, agricultureSupport to small and medium industries	Villages blocks: Roads (intra-blocks) ; livestock and agriculture (shared) ; electricity ; solar fencingClass-A Municipalities: Bus stops and parking (shared) ; support to small and medium industries (shared)
4. Environment protection	Waste managementDisaster adaptation and mitigation (shared)	Village blocks: Wildlife protectionClass-A Municipalities: Waste management (shared)Both: Disaster adaptation and mitigation (shared)
5. Housing and community amenities	Community centers, Farm shopsIrrigation	Community centers ; markets (shared) ;water source protection ; irrigation (shared)
6. Health	Hospital maintenance	Class-A Municipalities: Hospital maintenance (shared)
7. Culture & Recreation	Eco-tourism (shared)Monasteries and temples (shared)	Both: Eco-tourism ; monasteries and temples (shared)
8. Education	Lower, middle and higher secondary schools	Village blocks: Building and maintenance of primary schools and vocational training institutionsClass-A Municipalities: Building and maintenance of lower, middle, and higher secondary schools (shared)
9. Social Welfare

Scope of fiscal data: Districts, village blocks and Class-A Municipalities

Other

Availability of fiscal data: Low

Quality/reliability of fiscal data: Low

GENERAL INTRODUCTION: The financial powers and entitlement of subnational governments are outlined in Art. 22 of the Constitution, in addition to the following documents: The Public Finance Act of Bhutan (2007), the Local Government Act (2009) and Amendment Act (2014), and the Municipal Finance Policy (2012). Districts, blocks and class-A municipalities are entitled to levy, collect and raise taxes, duties, tolls and fees within the limits set by law. In addition, all subnational governments should receive grants from the central government as determined every five years, and are empowered to spend these funds based on their own priorities.

The resources allocated to subnational governments have been increasing over the years. Based on the DoRF, capital grants to subnational governments have doubled in the 12th FYP compared to the 11th FYP (from BTN 25 billion to BTN 50 billion). Before that, the capital grants allocated through the 11th FYP already represented a 25% increase from the 10th FYP. According to the 12^th FYP (2018-2023), out of the BTN 50 billion allocated to subnational governments, BTN 25 billion is allocated to districts, BTN 10 billion to village blocks, BTN 10 billion for class-A municipalities, and BTN 5 billion for municipal facilities in 16 Districts.

The Local Governance Rules and Regulations of 2012 stipulates that both Districts and Blocks shall establish Standing Committees for rule-making, disciplinary measures, monitoring, evaluation, and any other Standing Committees as and when necessary. The Local Government Act provides clear guidance on how they shall be transparent and accountable to citizens and put in place appropriate mechanisms for information dissemination. Accordingly, all subnational governments are required to have public notice boards, annual budgets, annual work plans and calls for tenders.

Subnational government expenditure by economic classification
	Dollars PPP / inhabitant	% GDP	% general government	% subnational government
Total expenditure	1 314	11.8%	35.2%	100%
Inc. current expenditure	788	7.1%	34.2%	60.0%
Compensation of employees	-	-	-	-
Intermediate consumption	-	-	-	-
Social expenditure	-	-	-	-
Subsidies and current transfers	-	-	-	-
Financial charges	-	-	-	-
Others	-	-	-	-
Incl. capital expenditure	526	4.7%	36.8%	40.0%
Capital transfers	-	-	-	-
Direct investment (or GFCF)	-	-	-	-

EXPENDITURE: In fiscal year 2019-2020, based on the annual financial statements of the Royal Government of Bhutan, subnational governments accounted for around 35.2% of total public expenditure, of which Districts accounted for 74%, Blocks for 15%, and the four Class-A Municipalities for 11%. However, for most of these expenditure, subnational government do not have spending power and are acting as spending agents on behalf of the central government.

Due to structural issues and lack of revenue for funding recurring resources, subnational governments currently have limited staff capacity. The 12th FYP addresses this challenge by planning to support greater decentralisation through strategic redeployment of human resources and build competency framework to professionalise the public civil service.

DIRECT INVESTMENT: Subnational governments accounted for 36.8 % of total public capital expenditure in Bhutan in fiscal-year 2019-20, and capital expenditure is a key function of subnational governments, accounting for 40% of their total expenditure. This is particularly true for Blocks and Class-A Municipalities, for which capital expenditure represented 77% and 45% of their expenditure, respectively, compared to 32% for Districts. A part of subnational investments are decided upon at the national level, in line with the Government’s flagship programmes that concern a small part of total public capital expenditure and aim to address national development priorities (reflected in 17 National Key Result Areas, or NKRA). In the current 12^th FYP, priority areas include youth unemployment, water security and poverty reduction.

Bhutan has introduced decentralised mechanisms to ensure the implementation of investment. For instance, the Community Contracting Protocol (CCP) has been introduced as an innovative way to foster community engagement in the implementation of smaller subnational infrastructure projects (below BTN 1.5 million). Any investment project above that ceiling must be tendered to commercial contractors. In addition, the Ministry of Finance has developed public-private partnerships (PPP) rules and regulations, guidelines, screening tools and other materials. This mechanism has been used by the Municipality of Thimphu in 2015, which designed a PPP Build-Operate-Transfers scheme for the development and management of an integrated parking system.

ⓘ No detailed data available for this country

Based on the 12^th FYP, the main areas of subnational investment for the 2018-2023 period are agriculture and forest (19% of subnational capital expenditure), housing and community amenities (16%), health (15%) and industries (14%). Specific needs and priorities have then been defined for each type of subnational government: Districts must focus their investments on local economy and job creation, quality of health and education, waste and culture. Blocks must prioritise investments in agriculture, access to health and education, water and hygiene. Finally, Class-A Municipalities should focus on urban facilities, water, sanitation, pollution and education.

ⓘ No detailed data available for this country

OVERALL DESCRIPTION: Subnational governments’ sources of revenue include transfers from the central government, tax revenue, user charges and fees, external grants from international organisations, and loans. Municipalities can collect their own taxes other revenue from within their jurisdictions. On the other hand, revenue of other subnational governments (dzongkhag and geowg) are administered at central government level, and then redistributed.

There are no official statistics on subnational government revenue for Bhutan, but based on international studies, inter-governmental transfers are by far the main source of subnational government revenue, followed by loans and grants from international bodies, while own-source revenue account for a very small share of subnational government revenue (around 1% on average). For instance, in 2016-17, inter-governmental transfers made up 86.6% of district financing, with the remaining 12.7% originated from development grants and 0.7% from loan financing. While grants are the main source of revenue for financing capital expenditure, user charges and fees are a significant source of revenue for financing current expenditure. In 2021, Parliament passed the Budget Appropriation Act for 2020-21, which aims to progressively replace earmarked grants (e.g. the Gewog Development Grant and the District Development Grant) with an annual capital grant.

Subnational finance is regulated by the 2007 Public Finance Act of Bhutan, the 2008 Constitution and the 2009 Local Government Act. Regulations differ for the various types of subnational governments. Clause 18, Article 22 of the Constitution entitles subnational governments in Bhutan to levy and collect taxes, duties, tolls, and fees in accordance with such procedure and subject to limitations as may be provided for by law.

Class-A municipalities (Thromdes) have had a separate policy since 2012, which clearly spells out how revenue shall be managed in the municipalities. Municipalities are required to cover own current expenditure in the middle and long term through own source revenue, thus gradually phasing out the supplementary capital and current grants from the central government. Capacity to raise own-source revenue differs significantly across municipalities. The country is divided into eight Regional Revenue and Customs Offices (RRCO). Based on this division, Thimphu region contributes to the major revenue collection (62%), followed by Phuntsholing (18%), and Bumthang (10%), whereas the RRCO of Gelephu contributes to 0.9% in 2019.

TAX REVENUE: Even though subnational governments are entitled to levy tax revenues, these are not considered part of their budget and financing plans and are essentially dedicated to cover minor expenditures outside of the budget. This is mostly true for Blocks and Class-A Municipalities, whereas Districts do not receive tax revenue. Section 57 of the LGA 2009 empowers Blocks to levy selected rural taxes, such as rural land tax, building tax, cattle tax, grazing tax and entertainment tax. Class-A Municipalities can levy taxes on land, property, property transfer (sales tax) and "betterment". They are also allowed to levy special taxes on vacant and underdeveloped land to encourage development and to raise and spend money to promote local economic development, as stated in the 2012 Municipal Finance Policy, which specify that they should be able to sustain their functions solely on their own-source revenue. Yet tax revenue still represent a very low share of subnational governments’ total revenue, even though they are increasing. For instance, according to Thimphu’s Projected Revenue and Expenditure Statement, the urban land and house taxes together contributed to around 23% of the total revenues of Thimphu Municipalities in 2018-19, against 8% in 2010-11.

Studies suggest that there is considerable scope for improving revenue collection. The rural land tax rate, for example, has not been updated since its creation in 1992. Since 2020, the Ministry of Finance aims to revise rural and urban land tax rates and building tax rates, through a Property Tax Bill. The Property Tax Bill, postponed in 2021 due to the COVID-19 crisis, proposes to charge a certain percentage of tax for rural property and another percentage for urban property. The value of the properties will be assessed by the Property Assessment and Valuation Agency (PAVA), based on the location of the land and distance from the Municipality.

The low share of subnational government tax revenue in Bhutan can be explained by the lack of designated revenue officers, low tax base in certain areas, and incomplete cadastres. In an effort to increase the share of tax revenue in subnational government revenue, the central government has been reflecting on how to simplify the tax administration, increase tax collection and enhance compliance as part of the 12^th FYP. In 2020-21, an online tax payment system has been designed.

GRANTS AND SUBSIDIES: Subnational governments receive current and capital grants from the central government. Current grants are determined by the Department of National Budget to finance subnational government current expenditure up to a certain ceiling, based on past expenditure, on the overall resource availability of the central government and on the projections of the Macroeconomic Fiscal Coordination Committee (MFCC). A first proposal is submitted by the Districts, Blocks and Class-A Municipalities, and the allotment is made after deliberation with the Department of National Budget. These resources are earmarked for covering staff expenditure, special allowances, travel, utilities, rental properties, supplies and materials, maintenance of property, medical benefits, other operating expenses, retirement benefits, etc.

Capital grants, on the other hand, are composed of a Resource Allocation Formula (RAF), and a Common Minimum Infrastructure (CMI) grant, which together form an Annual Capital Grant. The RAF allocates resources among the three types of subnational governments (Districts, Blocks and Class-A Municipalities). It is based on 4 criteria: population (35% weight), area (10%), multidimensional poverty index (45%), and transport cost index (10%). The CMI is aimed at reducing disparities in distribution of common public infrastructure and facilities among the three levels. As per the 12^th FYP, 40% of total annual capital grants go to districts, 40% go to blocks, and around 20% go to class-A municipalities. Capital grants are mainly earmarked, as 80% of the Annual Capital Grant is tied to the pre-set FYP priorities (developmental activities such as construction of schools, farms roads, community centres, water supply, irrigation schemes and other structures), and 20% can be used by subnational governments more flexibly.

Districts still perceive a District Development Grant (DDG) to support priority activities not included in the Plan. According to the 12^th FYP, the DDG currently amounts to BTN 10 million annually (as compared to 7 million each year in the previous FYP). The DDG guidelines allow the district to use 20% of the grant for preservation and promotion of cultural and religious heritage. However, the DDG is expected to be discontinued as of 2023, to be replaced by a District annual grant, over which subnational governments should have more autonomy. Prior to 2019, Blocks were also receiving a Gewog Development Grant (GDG) as an additional funding source. Since 2019, the GDG has been abandoned to the benefits of the annual grant.

The GNH Index score was used for the first time in the 12th FYP, as one of the criteria to determine resource allocation to subnational governments. A District, Block and Class-A Municipality with a lower GNH Index score receives higher allocation of resources based on a specific weight (10% for Blocks and Municipalities, 15% for Districts).

OTHER REVENUE: Subnational governments in Bhutan collect fees and charges, which represent barely 1% of total subnational government revenue. Most of the reported fees, charges and property income are, however, remitted to the central government and, for life and house insurance fees, to the Royal Insurance Corporation of Bhutan.

Other revenue includes income from property assets, such as land development and subdivision fees, land demarcation and registration fees, land leasing and building permits, census, etc. Subnational governments can perceive income from parking fees, market vendors, advertisement, and other fees. They also collect charges for services rendered, including water charges, sewage and solid waste charges, housing and other service charges. Class-A Municipalities can also levy special taxes on vacant and underdeveloped land to encourage development and to raise and spend money to promote local economic development. These revenues are, however, not largely collected, given the lack of comprehensive and updated land and buildings databases.

ⓘ No detailed data available for this country

FISCAL RULES: Subnational governments undergo three types of audits: annual, performance and environmental audits. Annual Auditing is mandatory and conducted by the Royal Audit Authority (RAA) on an annual basis, corresponding to the financial year (July to June). Performance Auditing is carried out on a random basis by the RAA. Environmental Auditing is carried out by the National Environment Commission (NEC) on an ad hoc basis, typically once in 3-4 years.

DEBT: Article 22 of the Constitution states that subnational governments are entitled to own assets and incur liabilities by borrowing on their own account, subject to such limitations as may be provided for by Parliament by law. According to the Local Government Act 2009 (Sect. 61-63), Class-A Municipalities are endowed with the power to borrow in accordance with national law.

Bhutan’s general government public debt reached 117.4% of GDP (BTN 222.1 million) as of March 2022, compared to 63.5% at end of the 9th FYP, and is expected to reach 145% of GDP by the end of the 12^th FYP in 2023 (BTN 249.2 million). Given the increasing debt levels and associated risks, the government is currently implementing initiatives to strengthen debt management, including enhanced transparency and reporting standards.

At the central government level, the fiscal deficit shall be financed through external borrowing mainly from the Asian Development Bank, the World Bank and the International Fund for Agriculture Development on concessional terms, in addition to domestic financial institutions. A significant share of the country’s public debt (75%) is called “hydropower-debt” as it was contracted to finance hydropower infrastructure, since hydropower development is considered by the government as a source of future revenue.

TERRITORIAL MANAGEMENT OF THE CRISIS: The country’s response to the impacts of the COVID-19 pandemic is guided by the framework of Gross National Happiness (GNH), which provides overall policy guidelines for Bhutan. To manage the COVID-19 crisis, the central government set up a classification of regions (red, yellow or green zones) based on the risk and prevalence of the virus, according to which restrictions were applied. Overall, the number of deaths related to COVID-19 is very low in Bhutan, with only 3 reported deaths as of December 2021.

One of the main challenges for Bhutan to manage the COVID-19 crisis was posed by the existence of many communities living in remote geographical areas. To overcome this challenge, human resources were reappropriated according to the population at risk. The country expanded its primary healthcare network so that as of end of 2020, it was estimated that there were 48 hospitals, 186 primary health centres, and three municipal health centres covering more than 95% of the population within three hours of travel.

COVID-19 cases were treated at four designated regional centres to concentrate the cases and rationalise the use of staff and personal protective equipment. In addition, Bhutan could rely on a network of volunteer public workers throughout the country (De Suung, or “Guardians of Peace”), that gathered in support to the Ministry of Health and the other ministries facing the impacts of the pandemic.

Subnational governments have set up their own mechanisms, bodies and measures to cope with the crisis. Dzongkhag COVID-19 Prevention Task Forces have been set up at district level. In addition, the respective Districts developed their own Standard Operating Procedures (SoP) for the distribution of essential items. Some have also implemented their own Disaster Incident Command System, after consultation with local and regional stakeholders. Some Districts, such as Trashigang Dzongkhag, have been divided into sub-zones for making intra-district management more effective (e.g. North, Central and South). Each zone encompasses a certain number of blocks (gewog), and is administered by a focal contact point, and an “incident commander”.

EMERGENCY MEASURES TO COPE WITH THE CRISIS AT THE DIFFERENT LEVELS OF GOVERNMENT: The Royal Government of Bhutan set up the National COVID-19 Response fund on 9 March 2020, with a total amount of BTN 30 billion coming from the central government and donations from citizens and international organizations. Whereas Bhutan has managed to avoid a health crisis, the COVID-19 crisis had a stronger impact on the economy, highly reliant on tourism. Therefore, the crisis has triggered an increase in the unemployment rate. Around 16% of the country’s working population​ works in the tourism sector or related sectors, including a growing proportion of young people. According to an assessment undertaken by UNDP and the National Statistics Bureau at the end of 2020, 32% of employees in the tourism sector had lost their jobs or income, and for 63% of households surveyed, income from tourism was their only source of livelihood. To mitigate the economic impact of the crisis, the central government applied measures such as the deferral of Business Income Tax and Corporate Income Tax payment for 2019 for tourism and other affected sectors.

IMPACTS OF THE CRISIS ON SUBNATIONAL GOVERNMENT FINANCE: Given the low share of tax revenue in total subnational government revenue, tax revenue of subnational governments has not been directly impacted by the crisis. However, there has been a decrease in user charges and fees, due to the impact of the pandemic on revenue-generating activities. This hampered the capacity of subnational governments to cover current spending needs, such as daily travel allowances for municipal staff. Based on the 12^th FYP, the grants from the central government to subnational governments have remained stable. The crisis has, however, delayed discussions regarding a reform of the land tax and the introduction of a modern property tax system for enhancing subnational government revenue.

On the expenditure side, COVID-19 led to delays in the implementation of investment and infrastructure projects as part of the 12th FYP, much of which are front loaded in the 2020/21 fiscal year. Five months into the 2020/21 fiscal year, only 6% of capital budget had been disbursed, due to prevailing shortages in the supply of workers and resources.

ECONOMIC AND SOCIAL STIMULUS PLANS: The COVID-19 crisis and recovery come at a crucial time for Bhutan, which has been in the process of graduating from Least Developed Country (LDC) status in December 2023, to coincide with the end of the implementation of the country’s 12th FYP.

In response to COVID-19 compounded impacts, the Government developed an Economic Contingency Plan to support the economic recovery. The 2021/22 budget is articulated around the objective of a “sustained economic stability for a resilient recovery”. Priority was given to the implementation of investment and infrastructure projects that were delayed due to the pandemic, COVID-19 mitigation and adaptation programs and activities, economically productive and growth-oriented activities, and to the implementation of important health and education projects.