Deliberation: Should the country prosper, governments will have to avail loans even if public debt accumulated over the years seem alarming.

This was what both the former and current ministers said, during a daylong deliberation on the Royal Audit Authority’s report on public debt management.

However a debt management policy has already been drafted which is expected to address most of the audit findings.

The former finance minister and Bartsham-Shongphu assembly representative, Wangdi Norbu, said Bhutan’s debt situation was still considered as moderate risk of distress because of strong track record of project implementation, committed donor support backed by substantial international reserve maintained in USD.

While the report raises concerns on increasing hydro debt, now constituting about Nu 81.5B (billion) of the total Nu 118.5B, he said there was a near absence of commercial risk.  Citing the examples of Chukha, Tala and Kurichu projects, he said, hydro debts were “commercial but viable credits.”

“People raise concerns on putting all eggs in one basket, but what choice do we have?” Wangdi Norbu said. “Although there are small activities to diversify the revenue base, the difference is sky and earth,” he said, in comparison to hydro revenue and other sources of revenue.

The debt to GDP in short term would escalate to 121 percent, but he claims that in the long term, because of hydro, the GDP would broaden and the ratio would decline.

Former trade minister, Wangchang Lamgong representative, Khandu Wangchuk said the current three projects of Punatsangchu I, II and Mangdechu would generate about Rs 30B annually.  If Sunkosh, Kurigoongri and Amochu came on line, he said they had the potential to generate another Rs 44B.

By virtue of the agreement, he said all surplus power would be sold to India and the tariff driven by the cost of the project, subject to renewal from time to time.

“If we don’t reap the hydro potential of one megawatt, we lose about 13M in a year,” he said.

After long insights the two former ministers gave, the Bardo Trong representative, Lekey Dorji, argued that investments made in the hydro projects were more than the budget size of the 11th Plan.  He also raised concerns on financing pattern that shifted from the 60 percent grant and 40 percent loan to 70 percent loan and 30 percent grant.

For instance, he said, the cost escalation of Punatsangchu I from Nu 35B to Nu 97B would make power tariff dearer for the consumers as well as for exporting.

Debt constituted about 70 percent of GDP by ninth Plan end and this ratio increased to 92 percent by the 10th Plan end, mainly accounting for about 20 percent increase in hydro debt.

If this is the case, then Panbang representative, Dorji Wangdi said there was nothing to be alarmed of, since hydro debts are self-liquidating.

Non-hydro debts

Non-hydro debt rose from Nu 16B in ninth Plan to about Nu 50B in 10th Plan.

The finance minister, Namgay Dorji, said there was an increase of about 93 percent and this was a matter of concern.  However, he said, the government had now brought the non-hydro loan down to Nu 36B.

The Khar-Yurung representative, Zanglay Dukpa responded that the former government had sought loans to provide mobile and electricity connectivity throughout the country, developed education, agriculture and thromdes. He said the current government only had to maintain those infrastructures already put in.

Wangdi Norbu also said these concessional loans with grace period of 10 years and repayment time of more than 20 years. “Not many countries get such loans because we have to fulfil many criteria and we have to grab this opportunity for socio-economic development,” he said. “These are free money.”

Debt ceiling

As the country graduate from low income to middle income, the audit findings also raised concerns on declining aid and stringent terms on loan.  The only way, former minister Khandu Wangchuk said was to expedite hydro power projects.

While the audit findings revealed that country’s debt exceeded the Maastricht value of debt to GDP ratio, Wangdi Norbu argued that this ceiling is a political treaty in European Union.

However, he said IMF and World Bank uses the ‘present value’ based on statistics to determine credit worthiness of a country.

The Maastricht value requires countries’ debt to GDP ratio at 60 percent.

The resolution

The joint sitting resolved that finance ministry and relevant agencies implement all the 33 recommendation the audit made and to diversify the revenue base.

It was also recommended that appropriate strategy to facilitate smooth transition from low income to middle income.

As for forming a separate debt management department with finance ministry, the house resolved that the decision be left with the Cabinet as per Royal Civil Service Act.

Tshering Dorji