The country’s external debt is projected to reach Nu 204B by the end of this fiscal year.

This is based on loan disbursement for the on-going and new projects. Add to it another Nu 10.9B domestic debt, the total public debt of the country is expected to reach about Nu 215B by the end of this fiscal year.

The new government has reiterated the stand of its predecessors that hydropower loans are self-liquidating and that it do not pose any threat to the economy.  

However, it is responsible for over 90 percent of the country’s total public debt and lopsided debt to GDP ratio. For instance, in 2009, the country’s total debt outstanding was Nu 35B, 56 percent of the GDP, and 61 percent of the debt pertains to hydropower. With the construction of mega hydropower projects, this ratio has doubled last year.

As of September 30, 2018, the total public debt stands at Nu 182B, of which country external debt forms Nu 175B and domestic debt constitutes Nu 7.5B.

External debt alone, according to the Budget report will profile 105 percent of the GDP and is estimated to grow by around 14 percent on account of Punatshangchhu I, II, Nikachhu and Kholongchhu.

However during the presentation of the budget report last week, finance minister Namgay Tshering said that level of public debt does not pose any risk. This he said was because hydropower debts are self-liquidating and non-hydro loans are availed from multi-lateral and bilateral development partners at highly concessional interest rate.

“In keeping with the public debt policy, efforts will be made to meet financing requirements from highly concessional windows,” the budget report states.

Of the total external debt, hydro loan forms 76 percent (Nu 154.8B) and non-hydro loan makes the remaining 24 percent (Nu 49.1B).

Non-hydro loans are mainly availed to meet the financing gap of the government because the entire revenue and grant falls short to finance the capital expenditure.

For instance, in the 2018-19 fiscal year, the fiscal deficit is about Nu 5B because total resource estimated (grant and domestic revenue combined) is about Nu 40B while total expenditure is projected at Nu 45B.

To cover the deficit, Nu 3.4B would be borrowed from World Bank, Asian Development Bank, IFAD and JICA, mostly interest free.

The fiscal deficit in the 12th Plan is estimated at Nu 29B. This means the country will have to borrow more to achieve the 12th Plan targets.

The government has also announced that it will consider issuing government bonds in the 12th Plan as an alternative source of financing the deficit.

Including the loan from NPPF and to redeem the existing treasury bills, domestic debt in 2018-19 is estimated at Nu 10.9B.

However, more than Nu 4B has been earmarked in this budget for debt servicing.

The World Bank’s debt sustainability analysis, 2018, reported that Bhutan is at moderate risk of debt distress. While hydro loans are self-liquidating, it stated that the country should explore other means to finance the country’s expenditure.

“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,” it stated.

The public debt policy, which was launched in 2016, is also expected to reduce undue debt burden that might arise from indiscriminate borrowing for social projects that do not give returns and avoid ad-hoc, short-term borrowing which are costly.

According to the policy, Bhutan’s annual debt service obligations of total external debt will not exceed 25 percent of total exports of goods and services. The thresholds for non-hydro power debt stock is fixed at 35 percent of gross domestic product (GDP) during the Five Year Plan period, while the general government debt should be less than 22 percent of domestic revenue in any given financial year.

Hydropower related external debt has to maintain a ratio of debt service to hydropower export revenue of less than 40 percent. The debt to equity ratio of hydropower projects also cannot exceed 70:30.

Tshering Dorji