The country’s debt distress is classified as moderate

Thukten Zangpo

The national debt is estimated to grow by 61.87 percent at the end of the 13th Plan, skyrocketing to Nu 474.42 billion up from Nu 293.09 billion in March this year. 

This projected national debt will be 94.8 percent of the estimated GDP during the 13th plan period. Of the total national debt, 82.8 percent (Nu 392.67 billion) will constitute external debt and 17.2 percent domestic debt (Nu 81.75 billion). 

Hydropower debt is projected to account for 73.3 percent of the total external debt and non-hydropower debt accounting for the remaining 26.7 percent. 

However, the external debt is projected to decline from 92.9 percent to 78.5 percent of GDP by the end of the plan period.

According to the 13th Plan, the World Bank has classified Bhutan’s external debt distress as moderate. That said, the accumulation of public debt and concerns over a potential debt crisis are significant issues.

In the 13th plan, the domestic revenue is projected at Nu 327.35 billion and grants at Nu 125 billion. Tax revenue is estimated to contribute Nu 230.62 billion to domestic revenue while non-tax revenue will contribute Nu 96.72 billion. 

The total budget outlay for 13th Plan is Nu 512.29 billion, a 63 percent increase from the 12th Plan outlay. Of the total budget, the current expenditure constitutes Nu 267.28 billion and capital expenditure Nu 245 billion. 

With total resources estimated at Nu 456.35 billion, the fiscal deficit is projected at Nu 55.94 billion, equivalent to 2.97 percent of GDP. 

Revenue surplus will finance 24.5 percent of capital expenditure, grants will cover 51 percent, and the remaining 24.5 percent will be financed through concessional external borrowings and domestic debt market borrowings. 

A large portion of external grants, amounting to Nu 85 billion, will be financed from India and another Nu 40 billion will be secured through concessional funds from global financial institutions like the Asian Development Bank and the World Bank. 

In addition, domestic funds will be raised through government bonds and treasury bills to achieve a balanced strategy for meeting the fiscal deficit. 

As of March this year, the national debt was reported at Nu 293.09 billion, which accounted for 109.8 percent of the GDP estimated for fiscal year 2023-24. 

The external debt comprised Nu 261.12 billion while domestic debt constituted Nu 31.97 billion of the total debt. 

Hydropower debt was reported at Nu 167.5 billion, constituting 64.1 percent of the external debt and 62.8 percent of the fiscal year 2023-24 GDP estimates. 

The total non-hydro external debt stood at Nu 93.62 billion, constituting 35.9 percent of total external debt.

According to the 13th Plan document, despite non-hydro debt being maintained within the stipulated threshold of 35 percent of GDP, averaging 31.5 percent over the four years of the 12th Plan period up to March 2022, the overall debt situation requires careful monitoring. 

The 13th Plan targets include containing fiscal deficit at an average of three percent of GDP over the plan period, achieving a tax-to-GDP ratio above 15 percent, and limiting non-hydro debt to below 55 percent of GDP.