ANNUAL FINANCIAL STATEMENTS of the ROYAL GOVERNMENT of BHUTAN for the YEAR ENDED 30 JUNE 2011 Department of Public Accounts Ministry of Finance i iii List of Abbreviations ADB Asian Development Bank AFS Annual Financial Statements BDBL Bhutan Development Bank Limited BFA Budget Fund Account BHPC Basochhu Hydro Power Corporation BHTF Bhutan Health Trust Fund BoBL Bank of Bhutan Limited CHPC Chhukha Hydro Power Corporation CIT Corporate Income Tax RoD (Danida) Resident Office of Denmark DGPCL Druk Green Power Corporation Limited DNB Department of National Budget DPA Department of Public Accounts DRC Department of Revenue and Customs FRR Financial Rules and Regulations FY Fiscal Year FYP Five Year Plan GCA Government Consolidated Account GDP Gross Domestic Product GNHC Gross National Happiness Commission GoA Government of Austria GoD Government of Denmark GoI Government of India IDA International Development Assistance IFAD International Fund for Agriculture Development JICA Japan International Cooperation Agency KFAED Kuwait Fund for Arab Economic Development KHPC Kurichhu Hydro Power Corporation NPPF National Pension and Provident Fund PFA Public Finance Act PIT Personal Income Tax RE Rural Electrification RGoB Royal Government of Bhutan RMA Royal Monetary Authority SA Spending Agencies THPC Tala Hydro Power Corporation WB World Bank WMA Ways and Means Advance T-Bills Treasury Bills v Page CONTENTS No. i Statement of Responsibility i ii Auditor General’s Report iii iii List of Abbreviations v iv Table of Contents vi 1 Introduction 1 2 Overview 1 3 Budget Estimates, Actual Outcomes and Financing 2 4 Receipts & Payments 3 5 Government Receipt by Sources 4 5.1 Internal Revenue 5 5.2 External Grants 7 5.3 Borrowings 7 5.3.1 Internal 8 5.3.2 External 8 5.4 Recovery of Loans 9 5.5 Other Receipts & Payments 9 6 Operational Results 10 6.1 Expenditure Growth 10 6.1.1 Current Expenditure 12 6.1.2 Subsidy Payment 13 6.1.3 Interest Payment 14 6.1.4 Capital Expenditure 18 6.1.5 On-Lending 20 6.1.6 Loan Repayment 21 6.1.7 Sector wise Expenditure 25 7 Government Debt Position 27 7.1 Domestic Debt 27 7.2 External Debt 27 8 Government Equity Holdings 34 9 Government Guarantees 34 10 Government Consolidated Account 38 11 Government Budget Fund Account 39 12 Refundable Deposit, Revolving and Trust Funds 40 13 Current Deposits Account 40 vii GRAPHS I Government Receipts by Sources 5 II Total Expenditure for FY 2009-10 & 2010-11 11 III Internal Revenue and Current Expenditure comparison 13 IV Statement of Interest payments 15 V Repayment of Principal loans 21 VI Summary of expenditure by Sectors 26 TABLES Table 1 Budget and Actual Comparison and Financing 3 Table 2 Consolidated Receipts & Payments Statement 4 Table 3 Government Receipt by Sources 5 Table 4 Summary of Revenue Collection 6 Table 5 International Assistances (Grants) received 7 Table 6 International Assistances (Loans) received 8 Table 7 Recovery of Loans for the FY 2010-2011 9 Table 8 Statement of Other Receipts & Payments 10 Table 9 Summary of Expenditure 11 Table 10 Current Expenditure & Internal Revenue Comparison 12 Table 11 Subsidy Payment 13 Table 12 Expenditure on Interest Payment 14 Table 13 Interest Payment on Loans - By Lender 15 Table 14 Interest Payment on Loans – By RGoB & Corpn. 17 Table 15 Capital & Repayment Expenditure comparison with Grants & Bor- rowings 20 Table 16 Statement of On-Lending 20 Table 17 Repayment of Principal Loans – Summary 21 Table 18 Repayment of Principal Loans - By Lender 22 Table 19 Repayment of Principal Loans - By RGoB & Corpn 23 Table 20 Summary of Expenditure by Sectors 25 Table 21 Summary of Revised Budget and Actual Expenditure 26 Table 22 Statement of Outstanding Loans – Summary 28 Table 23 Statement of Outstanding Loans – Detailed 29 Table 24 Statement of Government Equity Holdings 35 Table 25 Statement of Government Guarantees 37 Table 26 Reconciliation of Govt. Consolidated Account 38 Table 27 Reconciliation of Govt. Budget Fund Account 39 Annexure 1 - Credit as per Cashbook but not in BOB 39 Annexure 2 - Credit as per BOB but not in Cashbook 39 Table 28 Statement of Refundable deposit, Revolving and Trust Funds 40 Table 29 Summary of Current Deposits Account 40 ix SCHEDULES Schedule 1 Schedule of Revised Budget and Actual Outcomes 41 Schedule 2 Schedule of Expenditure Summary by Object Class 55 Schedule 3 Schedule of Grants received: by Donor 58 Schedule 4 Schedule of Loans received: by Lender 96 Schedule 5 Schedule of Expenditure Summary by Function 97 Schedule 6 Schedule of Non-Revenue Deposits 164 Schedule 7 Schedule of Other Recoveries and Remittances 165 Schedule 8 Schedule of Revenue Receipts and Remittances 171 Schedule 9 Schedule of Miscellaneous Receipts and Payments 178 Schedule 10 Schedule of Dishonored Cheques 185 Schedule 11 Schedule of Advances and Suspense 188 Schedule 12 Schedule of Opening and Closing Cash Balances 195 Schedule 13 Schedule of Government Current Deposit Account 196 ix 1. INTRODUCTION The Annual Financial Statements (AFS) reporting on the budgetary operations of the Royal Government of Bhutan (RGoB) for the Fiscal Year (FY) 2010-11 has been prepared by the Department of Public Accounts (DPA) as per the provisions of the Public Finance Act, 2007 (PFA 2007) and the Financial Rules and Regulations, 2001 (FRR 2001). The financial statements are based on the monthly accounts of the budgertary bod- ies recorded in the Public Expenditure Management System (PEMS) and information received from other relevant agencies. The statements and schedules presented in the AFS reflect the financial positions as at 30th June 2011. 2. OVERVIEW The approved budget for the Fiscal Year 2010-11 was Nu. 31,586.779 million with an estimated resources of Nu.26,774.538 million, resulting in a fiscal deficit1 of Nu. 4,812.241 million and a resource gap2 of Nu.3,808.494 million. However, with a total realized resources of Nu.28,171.759 million against the actual outcome of Nu.29,842.433 million, the FY 2010-11 ended with a fiscal deficit of Nu.1,670.674 million and a resource gap of Nu.1,376.706 million. The fiscal deficit is about 2.19 percent of GDP. The total Government expenditure during the FY 2010-11 amounted to Nu. 29,521.905 million accounting for 38.72 percent of the GDP3 and registering an increase of 14.3 percent from the previous FY. The variance between the revised budget and the budget outturn was estimated at 18.3 percent. The Government debt stock outstanding as on 30th June 2011 was estimated at Nu. 48,619.178 million equivalent to US$ 1,081.388 million which is about 63.8 percent of the estimated GDP. The outstanding Government Guarantees and Equity Hold- ings are estimated at Nu. 2,911.65 million and Nu. 44,803.063 million4 respectively as on 30th June 2011. 1 Fiscal deficit/surplus = (taxes + fees and income from property and enterprises + proceeds from sale of land and other capital assets + recovery of on-lendings + grants) – (current expenditures + capital expenditures + lending). Source: FRR2001. 2 Resource gap = (taxes + fees and income from property and enterprises + proceeds from sale of land and other capital assets + recovery of on-lendings + grants + project tied borrowings – (current expenditures + capital expenditures + on-lending + repayments). 3 GDP as per National Statistics Bureau is Nu. 76,241.260 4 Refer Table 23 & Table 24. Financial Statements of the Royal Government of Bhutan for the Year Ended 30th June 2011 1 3. BUDGET ESTIMATES, ACTUAL OUTCOMES AND FINANCING The Fiscal Year 2010-11 started with an approved budget of Nu. 31,586.779 mil- lion and an estimated resources of Nu. 26,774.538 million with a fiscal deficit of Nu. 4,812.241 million. Since the estimated project-tied borrowing of Nu. 3,351.806 million was higher than the scheduled loan repayment of Nu. 2,348.059 million, the resource gap was estimated at Nu. 3,808.494 million. During the fiscal year, the approved budget was revised to Nu. 35,237.088 million and the estimated resources to 30,549.658 million. At the close of the FY, the ac- tual outcome was Nu. 29,842.433 million and the total realised resources was Nu. 28,171.759 million. This has resulted in a fiscal deficit of Nu. 1,670.674 million. Fur- ther, with the actual project-tied borrowings of Nu. 3,110.010 million exceeding the loan repayment of Nu. 2,816.042 million by Nu. 293.968 million, there was a re- source gap of Nu. 1,376.706 million. The statement of the comparison of approved and revised budget with that of actual outcome and financing of the balances is presented in Table 1. 2 Financial Statements of the Royal Government of Bhutan for the Year Ended 30th June 2011 Table 1: FINANCING AND VARIANCE FOR THE FY 2010-2011 Nu. in million % VARIANCE Original Revised Original Revised Actual Vs Vs Budget Budget Outcomes Revised Actual A RESOURCES 26,774.538 30,549.658 28,171.759 14.1% -7.8% I. Domestic Revenue 15,816.334 16,962.551 17,458.797 7.2% 2.9% i. Tax 10,139.976 11,097.886 11,593.488 9.4% 4.5% ii. Non-Tax 5,676.358 5,864.665 5,865.309 3.3% 0.0% II. Other Receipts (Net) 53.066 273.112 215.235 414.7% -21.2% III. Grants 10,905.138 13,313.995 10,497.727 22.1% -21.2% i. Programme grants 1,905.700 1,883.794 1,781.161 -1.1% -5.4% a) GoI 1,400.000 1,400.000 1,400.000 0.0% 0.0% b) Other Donors 505.700 483.794 381.161 -4.3% -21.2% ii.