But guidelines on its implementation are still being drafted

A stabilisation fund worth Nu 100M as seed money will be instituted beginning next year to maintain macroeconomic stability and achieve a desired level of economic growth.

A stabilisation fund is a mechanism set up by a government or central bank to insulate the domestic economy from large influxes of revenue and secure it for future use to control inflation and maintain economic stability.

The National Assembly had approved the establishment of a stabilisation fund in the last session. However, the Parliament had asked the government to frame guidelines for the implementation of the fund and to also present a report in this session.

Finance minister Namgay Dorji presented the report to the house yesterday. He informed that a committee comprising representatives from the finance ministry, Royal Monetary Authority (RMA), economic affairs ministry, Gross National Happiness Commission and Druk Holding and Investments are still working on the Royal charter and guidelines for the fund.

“Since it is being set up for the first time and requires thorough study, it is taking time,” he said adding the Royal Charter and guidelines would be submitted to the Cabinet next month.

Lyonpo Namgay Dorji said that with the commissioning of Punatshangchhu I, II and Mangdechhu projects, the country’s revenue is expected to increase substantially. Royalty from these hydropower projects, he said will be injected into the stabilisation fund. The surplus transfer from the RMA and some portion of external grants will also be used.

Panbang MP, Dorji Wangdi said that the stabilisation fund is well intended. Citing provisions of the public finance Act, he said the government could establish such a fund. “But at the same time, the same clause of the Act cautions that such fund may be kept minimum,” he said.

He said the government has already established endowment funds for crop, livestock, research and education. “Although such funds may prove useful in future, having too many of it in the short term, blocks cash flow,” he said.

Finance minister said that in the last fiscal year of the 10th Plan, the estimated fiscal deficit was Nu 1.5B. However, the actual deficit was Nu 4B. This, he said is because the former government used more money to fulfil its undelivered pledges.

“We also have lots of pledges to achieve and we could have used this Nu 100M,” he said, adding that government instead decided to use it as seed money for stabilisation fund.

Speaker Jigme Zangpo pleaded and reminded the members to emphasis on the guidelines as the intent and objectives of the fund was extensively deliberated in the last session.

Opposition leader, Pema Gyamtsho (PhD) argued that the guidelines are not even drafted and most views raised by the members are based on the report the finance minister submitted.

Foreign Minister Damcho Dorji said the rudimentary function of stabilisation fund is to insulate the country from economic shocks. Even the Constitution, he said specifies the need of similar fund, but the mechanism of implementation is not specified.

“As the country graduates from LDC group, external grants have already started to decline,” he said adding that the government had to rely on the Nu 5B grant from GoI to stimulate the economy post rupee crisis. “If we have such a fund, we will be in a position to do it on our own,” he said.

The Speaker had to again warn the members to stay on track and asked them to share views that would help in formulation of guidelines.

The only recommendation on the guidelines came from Wamrong MP Karma Tenzin. He suggested that guidelines should have a clear system to address trade deficit.

When there is excess liquidity in banks, he said financial institutions free credit. “This leads to more import causing rupee shortage,” he said. Such excess liquidity, he recommended should be parked in the stabilisation fund. “The guideline should also look at how the stabilisation fund would ensure better debt management.”

He suggested that instead of keeping the fund idle, investment avenues should be explored so that its returns keep increasing and the fund multiplies. “It is also not clear whether the finance ministry or the RMA would implement the fund.”

The house resolved to implement the fund based on the Royal Charter and guidelines that are being drafted.

Tshering Dorji