After the National Assembly introduced the EIB framework agreement as an urgent bill this session, the National Council passed it and now, Bhutan will adopt the agreement if Royal Assent is provided.
When the agreement was first introduced, the NC rejected it in 2015 but since then the authorities are supposed to have worked on it and proposed amendments to the EIB who are again supposed to have agreed to the propositions.
Now when we think of international banks that have funded the country we naturally think of World Bank and Asian Development Bank. EIB is a relatively new area we are venturing into and we hope the Parliament has done its homework well.
If we are to look into critiques of the EIB, we see that they have a history of tax evasion and dodging, and working against human rights than for it. It has also been criticized for not being transparent enough in its functions.
Bhutan is a cash-strapped country and has been dependent on donors since it abandoned its policy of self-isolation and with the COVID-19 affecting the economy severely, the government will naturally look for funds to cushion the impacts of a downward-spiraling economy not to mention it is always better to have more eggs in the basket for the rainy days.
However, there are pros and cons to external borrowings. Simply because we are getting money at concessional rates or over an extended repayment time frame does not mean that we should not be prepared about the possible repercussions of a mounting and mammoth sovereign debt.
For instance, the advantages of external borrowings is that we get access to finance and capital budget at low interest rates and these can be repaid over a long duration. This can in turn lead to more economic opportunities and investments in the country including generation of employment.
However, external borrowings has its pitfalls as well: if the borrower has to repay the lender in their terms of currency, it could have some serious impacts especially when the value of the currency appreciates against domestic currency. This would mean that the value of money we borrowed during the particular time could increase manifold and we would be in more serious debt than we can imagine. And it will be a tough payback.
Also, if an international dispute arises between the borrower and lender, a signatory country like Bhutan might need to compromise its stand because the rules that govern the land no longer hold here. They will be decided in an international court and we have no concrete protection to fall back on unless we know the laws overseas really well and are able to make them meet our demands and concerns.
One recommendation to protect borrowers against changing exchange rates is dollarization because dollars is the accepted world reserve currency in the global economy. However, one knows that the shareholders of the EIB are the 27 member states of the EU which are not exactly known for their unity or economic success. After Euro became the currency of negotiation since Pound and since too many members joined the Union, the member states have not been able to raise the bar for the Euro leading to instability based on trade and economy.
If Bhutan is thinking of a stable bank to borrow from and equally sound basis that will not hamper its sovereignty and economy, it should have done a lot of groundwork before adopting the bill.
Hopefully, we will be a signatory country to EIB and not an economic battle-ground.