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Economy: The country’s debt to GDP ratio has reached 116.9 percent of the GDP while the debt service ratio of the country has reduced from almost 20 percent in 2014-15 to 9.7 percent as of March this year.

The debt-to-GDP ratio is the ratio between a country’s government debt and its Gross Domestic Product (GDP). A low debt-to-GDP ratio indicates that an economy that produces and sells goods and services has sufficient money to pay back debts without incurring further debt. It is like comparing how much a country owes with that of how much it produces and sells.

According to the Royal Monetary Authority’s (RMA) monthly statistical bulletin, the country owes USD 2.069 billion (B), of which USD 585 million (M) is convertible currency driven loan and more than Nu 100B is INR loan.

However, the debt service ratio of convertible currency loan has reduced from 17.1 percent to 14.2 percent as of March this year. The debt servicing in terms of INR has substantially declined from 20.7 percent to 8.3 percent during the same period,

In economics and government finance, debt service ratio is the ratio of debt service payments (principal + interest) of a country to that country’s export earnings. A country’s international finances are healthier when this ratio is low because it means that either the country has reduced its loan or its exports have increased.

Officials said that the INR debt servicing has been reduced because most high interest bearing commercial borrowings made in INR has been repaid and that the hydropower loans are self-liquidating.

Economists around the globe have not identified a specific debt-to-GDP ratio as being ideal but the euro zone has the Maastricht treaty mandating the governments to maintain a debt to GDP not more than 60 percent.

As for Bhutan, the recent debt management policy approved by the cabinet has set a limit on borrowing made for non-hydropower. A limit of 35 percent of GDP has been set on the non-hydro borrowing,

In the hydropower sector, both officials and politicians have a common understanding that loans towards the hydropower sector are self-liquidating.

Economies around the world have also started to focus on the sustainability of certain debt levels because if a country can continue to pay interest on its debt without refinancing or harming economic growth, it is generally considered to be stable.

Generally, the higher the debt-to-GDP ratio, the less likely the country will pay its debt back, a local economist said that even though the government may strive to have low debt-to-GDP ratios, government borrowing may increase in times of recession

Should the country’s debt level remain the same and its GDP increases, then the ratio of debt to GDP is bound to decrease. The national debt clock, an online agency, which keeps track of debt stocks of most of the countries, has currently identified Bhutan as the top 10 countries with high level of debt to GDP ratio.

However, RMA’s monetary policy statement also revealed that despite slightly lower than expected, the country’s real GDP is projected to increase from 5.2 percent to 7 percent in 2015-16 stimulated by increased momentum in mining, construction and services.

The partial commissioning of Punatshangchhu II and Mangdechhu hydropower projects are also expected to accelerate growth to 12.4 percent in 2017-18.

Tshering Dorji

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