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The risk is however considered low

Debt: The country’s total public debt as of September 2016 is Nu 164.75 billion, showing an increase of Nu 4.19 billion or 2.6 percent compared with June this year, a recent report from the finance ministry reveals.

While the increase was mainly due to the disbursement received for the on-going hydropower projects from the Government of India (GoI), the report states that the country’s risk from the high debt level is low.

The total public debt to GDP ratio has decreased from 114.7 percent to 101.3 percent during the same period.

Although the level of total public debt is high, the finance ministry’s report states that the risk is low. This is because the cost of debt is sustainable while debt with variable interest rate constitutes only about 2.8 percent of the total public debt. About 97.2 percent of the debt is at fixed interest rate and that limits the exposure to interest rate variations.

While the Rupee driven debt is high at almost 75 percent of the total external debt, the majority of it (88.5 percent) is on account of hydropower projects from GoI, the repayment of which is again linked to export-revenue proceeds from the hydropower projects. Since the Rupee is pegged at par with the Ngultrum it  safeguards shock against exchange rate fluctuations.

“Given the commercial viability and sustainability of these hydropower projects, the current debt stock is not expected to pose any risk of debt default and debt stress,” the report states.

The remaining 25.1 percent are convertible currency debt, mostly concessional with interest rates ranging between 1 to 2 percent and a grace period up to 30 years.

The hydropower debt of Nu 118 billion is mainly on account of hydro projects such as Tala, Punatsangchhu-I, Punatsangchhu-II, Mangdechhu, Dagachhu and the Basochhu hydropower projects. It accounts for 73.9 percent of the total external debt and constitutes about 72.6 percent of the estimated GDP.

The non-hydropower debt of Nu 41.6 billion was segregated into non-hydro development debt, non-hydro commercial debt and non-hydro central bank debt.

The non-hydro development debt constitutes a major proportion of total non-hydro debt. As on  September 30, the outstanding non-hydro development debt was Nu 21.22 billion, accounting for 51.0 percent of total non-hydro debt.

The outstanding non-hydro commercial debt was Nu 6.66 billion and non-hydro central bank debt was Nu 13.7 billion as of September 30.

In terms of Rupee and Convertible Currency, INR 119.53 billion outstanding debt is Rupee denominated while USD 600 million is the outstanding Convertible Currency debt, which is equivalent to Nu 40.15 billion.

The Convertible Currency debt pertains to the concessional loans borrowed from various multilateral financial institutions such as ADB, the World Bank and IFAD and countries like Austria, Denmark, Japan (JICA) and Germany (DEG). It constitutes about 24.7 percent of estimated GDP and about 25.1 percent of total external debt.

Debt from India represents about 75 percent of the total external debt, followed by the ADB (10.8 percent), World Bank (7.7  percent), Austria (3 percent), JICA (1.9 percent), IFAD (1.5 percent) and Germany (0.3)

The domestic debt, however, stands at around Nu 5 billion, constituting about 3.1 percent of the total public debt. It pertains to government treasury bills issued to manage cash flow fluctuations and domestic borrowing from the NPPF for the constructions of staff quarters at Phuentsholing hospital. The economy saw an 8.8 percent increase in domestic borrowing in September compared to June this year.

External borrowing, which is almost 97 percent of the public debt, stands at Nu 159.68 billion.

The government budgetary debt at Nu 21.22 billion constitutes about 13 percent of total external debt. Government budgetary debt is the external debt outstanding on account of loans received by the government under the “external assistance programme” from the multilateral agencies and bilateral sources for socio-economic development projects and programmes. The debt service obligations for these loans are borne directly by the government.

Corporate debt amounting to Nu 124.75 billion is the largest component, constituting 78.1 percent of total external debt and 76.7 percent of estimated GDP. This means that the outstanding debt received by the government from various creditors and are on lent to state enterprises, including the hydropower projects. The debt service obligations for these loans are borne by the state enterprises.

The Central Bank debt is made of Standby Credit Facility of INR 7 billion availed from GoI and INR 6.7 billion availed from the Reserve Bank of India Swap arrangement. External debt availed by the RMA is to meet the fluctuations and support the economy’s balance of payment.

Besides the government has also issued sovereign gurantees for state enterprises like Bhutan Development Bank and Drukair worth Nu 3 billion.

Tshering Dorji

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