In what could allay the concerns over mounting public debt, Bhutan has a moderate risk of debt distress according to the World Bank.

The World Bank’s finding is based on debt sustainability analysis (DSA), which is another measure to assess a country’s indebtedness. DSA refers to the ability to pay its debt obligation in the long term without a liquidity problem.

Should Bhutan go by the external debt indicators like the external debt to GDP ratio, Bhutan is suffering a high risk of debt distress. The debt to GDP ratio is 121 percent as of March 2017, which makes Bhutan one of the top 10 indebted countries.

The debt assessment based on DSA considered the country’s hydropower debt.

The dominance of hydro external debt is closely related to sustainability of external debt. About 90 percent of hydro external debt is financed by India with interest rates at 9-10 percent for Punatsangchhu I and II, and Mangdechhu projects. The first interest and principle payments are expected in 2018.

However, this timing is earlier than the re-scheduled commissions of Punatsangchhu I and II. There are also concerns relating to the increasing construction costs and delays. The World Bank’s study stated that “the Government of India covers both financial and construction risks of these projects and buys the surplus electricity output at a price reflecting cost plus a 15 percent net return.”

The ripple effect is that the delays and cost escalation affect economic growth. But government revenues and repayment capacity, according to the World Bank, is considered sustainable. “Hydro external debt is therefore unlikely to lead to a debt crisis,” the World Bank stated.

World Bank’s assessment also shows that debt management is reasonably good, although there is room to improve a debt management strategy. “The adoption of the Public Debt Policy 2016 is an important achievement,” the report stated.

For example, non-hydro external debt to GDP is set at 35 percent. The current non-hydro external debt to GDP ratio is 22 percent, well above the threshold.

The report also stated that non-hydropower government debt, which is the borrowing from multilateral and bilateral agencies for socio-economic development, is highly concessional. For instance, the latest World Bank financing term is 1.25 percent interest rate with 25-year repayment period.


According to records with the Royal Monetary Authority (RMA), Bhutan has a total outstanding debt of more than Nu 160B as of March 2017. Of this, Nu 119B are rupee denominated debt. Except for Nu 7B of rupee debt, rest pertains to hydropower.

Convertible currency debt accounts for more than Nu 40B, of which more than Nu 39B are from multilateral and bilateral agencies.

Figures from the RMA include the total external debt of the country (public and private combined) and are therefore not comparable to data published by the Ministry of Finance and World Bank, which covers only public debt. Further, the RMA uses calendar year GDP figures for all ratios to the GDP and hjydropower debt excludes accrued interest.

This is why the World Bank’s report stated that public debt was 107 percent of the Gross Domestic Product (GDP) as of March 2017. Hydropower external debt was at 77 percent of GDP with non-hydropower external debt accounting for 22 percent of GDP.


The DSA does not suggest an immediate risk of a debt crisis, the World Bank stated.

As for the hydro debt, the current arrangement of a 15 percent of net return from the hydropower projects ensures sustainability. “Maintaining this arrangement is critical,” the report stated.

With regard to the debt sustainability of non-hydro external debt, it was highlighted that economic growth rate and cost of financing need to be considered. This is because if debts are used for productive purposes such as infrastructure and investment in health and education, it needs to maximise access to concessional financing, to ensure sustainability.

The report also stated that maximizing access to non-debt financing such as foreign direct investment (FDI) and remittances ensures stable financing for development and less reliance on debt financing.

Tshering Dorji


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