External debt growing at 9.5 percent

Hydropower loans now account for 83 percent of INR owing

Economy: The country’s stock of outstanding external debt saw an increase of 9.5 percent between June 2013 and June 2014.

In three months, from June to September 2014, debt swelled to 108 percent from 101 percent of the GDP size.  This means the total debt today exceeds the size of the economy by eight percent.

In absolute terms, from USD 1.6B in June 2013, the total debt increased to USD 1.8B in 2014.

The Royal Monetary Authority’s (RMA) annual report revealed a growth of 10.6 percent in rupee debt, and 8.7 percent growth on debt pertaining to convertible currency.

Rupee debt also constitutes 64 percent of the total debt, which grew from Rs 67.8B in June to Rs 74.9B in September last year, a duration of three months.

This was mainly on account of disbursements of rupee loan for the ongoing hydropower projects.

Hydropower loans now account for 83.4 percent of outstanding rupee loan as of June 2014, against about 70 percent in 2013.

This was because rupee loan through the overdraft facility from SBI and PNB, India has been either liquidated or not renewed.  The INR swap loan from the RBI was also repaid in September 2013, which is why the hydro loan accounted for a majority of the rupee debt.

As of  fiscal year 2013-14, disbursement for Punatshangchu I amounted to Rs 25.7B, and Rs 14B for Punatshangchu II.  Disbursement towards Mangdechu hydropower projects amounted to Rs 10.4B.

The RMA report also stated that actual interest payments on hydropower debt denominated in Indian rupees amounted to Rs 1.4B last year.  However, it also highlighted that the accrued interest on the three ongoing hydropower projects amounted to almost Rs 3.6B.

Almost all the convertible currency debt (USD 629M) is concessional loans that the government availed to finance various socio-economic development projects.

But interest payments on convertible currency debt also increased from USD 7.2M to USD 8.7M.

However, according to an audit report on public debt management published in April last year, hydropower debt is projected to reach Nu 211B in the end of eleventh Plan, accounting for around 81 percent of the total external debt.

Local economists said this projection was made in consideration to the 10,000 MW by 2020 target.  Now that this target is under scrutiny, some said the figures could come down.

Although the government, both the former and the current, has stressed that hydropower debts are self-liquidating, some pointed out that loans undertaken for hydropower projects are susceptible to time and cost overruns, thereby increasing the debt burden.

For instance, the cost escalation of Kurichu was about 120 percent from the initial estimated cost of Nu 2.5B, and Tala’s cost overrun was 207 percent from the initial estimate of Nu 14B.

The geological surprise at Punatshangchu I added Nu 94M to the initial estimated cost of about Nu 35B.

Meanwhile, since the first concessional loan the country availed in 1981 for development of the small farms project, about USD 825.6M convertible currency and Rs 224.7B of loans have been disbursed to Bhutan by various foreign governments, international multilateral, bilateral, and private financing agencies.

Besides the government of India, the largest creditor to the country was the Asian Development Bank, followed by government of Austria.

Tshering Dorji

 

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