However, not counting hydropower loans, debt is at a decent 37 percent or so of GDP

Economy: Bhutan’s total outstanding external debt has exceeded the size of economy by 12 percent as of December last year.

The country’s debt to GDP ratio, as measured by the Royal Monetary Authority (RMA) in its bulletin stood at 112 percent.

This means that the country’s debt increased to about USD 1.84B (billion), which is equivalent to around Nu 114B at today’s exchange rate, against the GDP of USD 1.7B or Nu 104B.

As of September last year, the ratio stood at 108 percent.

However, almost 75 percent of total debts are INR driven loans for hydropower.

Hydropower loans, RMA’s annual report states, accounts for 83.4 percent of the outstanding rupee loan.

But if the hydropower loans are not separated, the country’s debt position is comfortable at about 37 percent of the GDP.

Finance minister, Namgay Dorji, said, if not for the funds the Government of India (GoI) has released for the hydropower projects, the ratio should drop.

“We haven’t borrowed any but serviced most of the non-hydro loans,” he said, adding that loans might be on account of hydropower.  Treasury bills, he said, were a short term borrowing of maximum 90 days, and thus should not be accounted in determining the debt to GDP ratio.

The government has cleared about Rs 15.6B loan undertaken from various arrangements with India, but owes Rs 10B, which was borrowed from GoI line of credit and is due this month.

While debt to GDP ratio is an important yardstick to measure a country’s credit worthiness, there is no threshold limit as such in place on how much of debt to GDP ratio should a country maintain.

In case of the European Union, the Maastricht value of debt to GDP ratio takes effect.  As per this value, the debt to GDP ratio should be maintained below 60 percent.

However, most government officials and politicians maintained that Bhutan’s case was different and didn’t need to necessarily abide by the Maastricht value.

Most hydropower projects are GoI funded through grants and loans and, once the projects are commissioned, they would self liquidate and thus be sustainable.

One government official said it was however the cost escalation of the projects that place undue burden on the debt servicing.

In the last parliament session, the Prime Minister announced that a working committee, with representatives from all relevant agencies, was formed since August 2014 to draft a debt policy.

Lyonchoen had said that representatives from RMA, Gross National Happiness Commission, National Statistical Bureau, the economic affairs and finance ministries have drafted the policy.

Lyonpo Namgay Dorji said the policy was still being worked on and it might take some more time.  This policy, when in place, would determine a debt ceiling and a proper debt management strategy.

The country’s external debt is projected to rise to 121 percent of GDP in the 2016-17 fiscal year, according to World Bank projections.

The RMA annual report also revealed a growth of 10.6 percent in rupee debt, and 8.7 percent growth on debt pertaining to convertible currency.

Meanwhile, an economist said that, when a country’s economy slows, government would frequently borrow to meet its obligations or to stimulate its economy.

He said if the government was borrowing to stimulate the economy, for example, to create work programs for the unemployed, then it would shorten the duration and severity of the economic downturn.

In any event, he said, the government had to repay and that was where this ratio was useful. “Even as an individual, people have a limit on the amount of debt they can acquire because, at some point, they will no longer be able to service the debt and bankruptcy or default will ensue.”

By Tshering Dorji