๐๐ก๐ฎ๐ญ๐š๐งโ€™๐ฌ ๐ž๐ฑ๐ญ๐ž๐ซ๐ง๐š๐ฅ ๐๐ž๐›๐ญ ๐๐ซ๐จ๐ฉ๐ฌ ๐ญ๐จ ๐Ÿ.๐Ÿ“% ๐ข๐ง ๐’๐ž๐ฉ๐ญ๐ž๐ฆ๐›๐ž๐ซ

The GoI remains the countryโ€™s largest creditor

Bhutan slowed down its overseas borrowings as external debt dropped to 1.5% in September over the same period a year ago to Nu 219bn, according to the latest data released by the Ministry of Finance.

The decrease has been largely on account of a drop in bilateral debt by the government.

The bilateral debt fell by 2% and multilateral rose by 2%. The combined borrowing amounted to Nu 240bn as of September end. The external debt to GDP ratio declined to 116.2% at September-end from 125.37% at june โ€“end this year.

The government debt accounted for 92.9% of the total external debt, according to the MoF.

The government debt includes debt on account of borrowings for budgetary activities, the development of hydropower projects, and project loans availed by the government and on-lent to public corporations.

The external debt stock decreased by Nu 1,501.083mn (-0.7) mainly on account of the MHPA repaymentโ€” the second principal repayment of Nu 1,392.502mn was made in July 2021, based on the draft repayment protocol between the RGoB and the Government of India (GoI).

In addition, the depreciation of foreign currencies (USD, EUR, XDR, and JPY) in which CC debt is denominated also significantly reduced the Ngultrum value of CC debt stock, causing further decline in external debt stock.

However, the GoI remains the countryโ€™s largest creditor. As of September 30, 2021, 70% of Bhutanโ€™s external debt was owed to the GoI, followed by 14% to ADB and 12% to IDA. The rest, about 4%, were owed to IFAD, JICA, GoA, and SDF combined.

Almost 73.5% of the external debt was on account of debt contracted for financing hydropower developments in the country, followed by debt contracted for policy and budget support from the World Bank and ADB at 12.8% of the total external debt.

Borrowings for financing infrastructure development in the country, such as rural electrification, road connectivity, trade infrastructure, and urban development are some addition for the government.

About 70% of the countryโ€™s external debt is denominated in Indian Rupee, followed by denomination in SDR (21%), USD (7%), and EUR and JPY at 1% each.

According to the MoF, the external debt servicing in FY 2021-22 is expected to increase by more than 100% compared to prior year external debt servicing, mainly because of full annual debt servicing for the MHPA and liquidation of Standby Credit Facility of INR 4,000mn.

As a result, despite the projected increase in exports during FY 2021-22, the external debt service to exports ratio is expected to rise from 11.7% in FY 2020-21 to 21.2% in FY 2021-22.

Meanwhile, the external repayment is expected to increase significantly from FY 2026/27 due to the start of the repayment for Puna-I and Kholongchu Hydropower loans.

The repayment is projected to remain elevated from FY 2026/27 until FY 2037/38 as the repayment for all the mega hydropower projects would be ongoing then.

However, after the liquidation of the MHPA and Puna-I debt in FY 2037/38, the repayment is projected to drop considerably from FY 2038/39 and remain low and stable thereafter.

The high repayment of Ngultrum-denominated debt in FY 2021/22 is due to the redemption of Nu 17,000mn T-Bills stock, which will be redeemed in the coming months.

Similarly, the high repayment of Ngultrum debt in FY 2023/24 is due to the redemption of the 3-year Government bond of Nu 3,000mn that was issued in September 2020.

Kinley Yonten from Thimphu