Domestic debt up by 42.3% to Nu 9bn in first quarter of 2021

However, the total public debt is down by 0.1% to Nu 224.9bn in Q1 of 2021

Bhutan’s domestic debt increased by 42.3% during the first quarter of this year nearly amounting to Nu 9bn, compared to the end of the fourth quarter of last year, according to the finance ministry.

It saw an increase of Nu 2.7bn from the public debt recorded at Nu 6.34bn at the end of last year.

“The increase was due to the issuance of a 10-year government bond of Nu 700mn in February 2021 and Nu 2,000 Treasury Bill (T-Bill) during the first quarter,” states the finance ministry in the quarterly debt situation report.

The domestic bill comprised T-Bill stock of Nu 5,000mn and the government bond of Nu 3,700mn, a 3-year government bond of Nu 3,000mn (issued in September 2020) and a 10-year government bond of Nu 700mn (issued in February 2021).

Moreover, the balance was loan outstanding to the National Pension and Provident Fund borrowed to construct staff quarters for the Phuentsholing Hospital and the liquidation of Bhutan Hydropower Services loan to the German Investment Corporation, Germany, states the report.

However, the total public debt decreased down by 0.1% to Nu 224.9bn in this quarter, accounted for 120.5% of the gross domestic product compared to the end of the fourth quarter of last year.

Compared to the end of December last year, total public debt deceased by Nu 116.6mn accounting to 0.1% from the total debt of Nu 225bn at end of December last year as of March 31, this year.

Decrease in the external debt and depreciation in the three currencies namely Euro, Yen and special drawing rights was the factors for the decline in the public debt, as per the finance ministry.

The total external debt decreased to Nu 215.82bn in the first quarter from Nu 218.64bn in December last year due to Mangdechhu debt servicing and other convertible currency (CC) debt repayment.

Additionally, depreciation of three currencies namely Euro, Yen and SDR in which 78.3% of the CC debts are denominated also caused a significant drop in the Ngultrum value of the external debt.

From the total external debt  of Nu 215.82bn, 93% are the government debt that includes budgetary debt of Nu 40.85bn and Nu 159.88bn of outstanding loans including hydropower debt that have been on-lent to State Owned Enterprises.

The corporate debt accounted 3.7% of the total external debt that is Nu 8.08bn and it includes loans availed by Drukair from SAARC development Fund for the purchase of ATR 42-600, and by Tangsjibi Hydro Energy Limited from the Asian Development Bank (ADB), State Bank of India, and EXIM Bank of India for the hydropower development.

Additionally, Central Bank debt comprises 3.2% of the total external debt for standby credit facility availed from India, however, it does not include the short-term swap arrangement of INR 14.27bn with the Reserve of India.

Of hydro and non-hydro debt, hydro debt stands at Nu 160bn that constitutes 74.2% of the total external debt and about 91.2% of the hydro debt are denominated in INR and 8.8% in CC.

The non-hydro debt stands at Nu 55.78bn that accounts to 25.8% of the external debt as of March 31 this year.

According to finance ministry, although the total public debt remains at 120.5% of the gross domestic product, the overall risk is considered low and manageable.

It states that the average interest rate is high at 7%, the cost of total public debt is considered sustainable given the 74.2% of the external debt in hydropower projects that are commercially viable and with significant export potential. Additionally, 91.2% of the hydro debt is denominated in INR, to which the Ngultrum is pegged at par, mitigating exchange rate risks.

Moreover, the debt with fixed-interest rate constitutes 99.6% of the total public debt and the average time to re-fixing (ATR) is estimated at 11.3 years. It states interest rate risk is low due to the long ATR and the small portion of variable-interest rate debt.

The report also states that the average time of maturity of the debt is estimated at 11.8 years, and about 1.6% of the debt will be maturing in a year. With long ATM and low level of debt maturing in a year, it states refinancing and rollover risk is low.  However, it states the domestic debt might pose some refinancing and interest rate risks as about 48% of the domestic debt is maturing within one year.

Though the proportion of external debt is quite high at 96% of the total public debt, the exchange rate risk is low because of the following reasons: The finance ministry projects that principal repayment would increase significantly from fiscal year 2021-22 due to Mangdechhu debt servicing and it would rise from fiscal year 2024-25 with the start of repayment for Puna-II hydropower loan after its projected commissioning in December 2022.

Moreover, the repayment would further peak from fiscal year 2026-27 due to the start of the repayment for Puna-I and Kholongchu Hydropower loans.

Bhutan’s largest extender creditors are India that represents 71% of the total external debt, followed by ADB at 14%, World Bank at 11%, Japan International Cooperation Agency, 1%, Austria, 1%, International Fund for Agricultural Development, 1% and the SAARC Development Fund at 0.4%.

Thukten Zangpo from Thimphu