Thukten Zangpo

Growing national debts, combined with an escalation in debt-service payments, have sparked concerns about the future of the country’s investments.

Debt servicing through the government budget has risen from Nu 8.39 billion as of June 2022 to Nu 9.16 billion in June 2023, as reported by the finance ministry.

It is further projected to increase to Nu 14.54 billion — Nu 9.49 billion (50 percent for the Mangdechhu loan) for external debt servicing and Nu 5.05 billion for domestic debt servicing in the 2023-24 fiscal year.

Given the country’s estimated domestic revenue of Nu 44.93 billion in the fiscal year, the debt servicing equates to 32.4 percent of the domestic revenue as of September update.

The ministry maintains that the total debt service to domestic revenue remains within the threshold outlined in the Public Debt Management Policy of 2023, which stipulates it should be below 35 percent of the government revenue.

However, Bhutan has estimated Nu 45.55 billion as recurrent expenditure for the fiscal year 2023-24, representing more than 90 percent of domestic revenue, given Bhutan’s welfare state and large public sector. The Constitution mandates that the cost of recurrent expenditures must be covered by the country’s internal resources.

Moreover, with an estimated capital expenditure of Nu 29.32 billion, the country’s fiscal deficit is projected to be Nu 21.35 billion in the 2023-24 fiscal year. This deficit is to be financed through concessional external borrowings, with the remaining balance raised from the domestic market.

Given that more than 90 percent of Bhutan’s domestic revenue is allocated to meet recurrent expenditures, it is evident that debt servicing payments are not covered from internal resources or domestic revenue.

As Bhutan exits the list of least developed countries (LDC) on December 13, the country will lose access to multilateral LDC-specific funds. Simultaneously, with the country’s ambitious plan to increase its gross domestic product (GDP) to USD 2.5 billion by 2029 and USD 5 billion eventually, Bhutan will require substantial investment for both debt and equity financing.

Experts warn that if the country’s domestic debt reaches 200 percent of GDP, the debt-servicing burden could exceed 35 percent of domestic revenue, rendering it unsustainable.

If the government allocates most of its revenue to servicing debt, there will be less money available for public investments, including social and development projects.

Bhutan could find itself in a “debt overhang” situation, where the country struggles to make new investments or borrow money easily due to the majority of cash flow going towards servicing debt.

Despite the national debt reaching Nu 272.97 billion, equivalent to 134.8 percent of the GDP in September this year, the finance ministry states that the overall risk is deemed manageable.