The next three Fiscal Years will witness a growing public debt scenario of the country
The Ministry of Finance (MoF) has estimated the country’s public debt to reach Nu 313,480.07 million (M) for the fiscal year (FY) 2024-2025, Nu 383,372.6 (M) for the fiscal year 2025-2026, and Nu 399,672.44M for the fiscal year 2026-2027.
Similarly, the domestic debt for 2024-2025 is estimated at Nu 21,098.05M, while Nu 292,382.02M is estimated as external debt for the year.
According to the Ministry, the total public debt in the 3rd quarter of this year stood at Nu 293,089M, an increase of 2.6% from the 2nd quarter’s figures of Nu 285,179M, accounting for 106.9% of Gross Domestic Product (GDP).
The Ministry stated that the reduction is mainly due to the redemption of Treasury Bills and the repayment of government bonds. Compared to the 3rd quarter’s projections, public debt as a percentage of GDP is expected to decline further according to the 4th quarter projections in the medium term.
Of the total public debt, 7.5% is domestic, while 92.5% is external in the Financial Year (FY) 2023-24. However, public debt is projected to increase by Nu 28,300M in FY 2024-25 to finance budgetary deficits and meet borrowing needs for hydropower projects.
In the medium term, the share of external debt in total public debt is expected to increase, while the share of domestic debt will decrease. This shift is primarily due to the rising levels of debt associated with hydropower projects.
Meanwhile, the Central Government debt as of 30th June 2024 was decreased to Nu 99,659 million from Nu 116,456 million as of 31st March 2024 accounting for 37% of GDP, which I within the debt threshold of 55% of GDP mandated by the Public Debt Management Policy 2023.
As per the current latest update from the Finance Ministry, the central government debt as a percent of GDP is expected to decline as compared to the 3rd quarter projections due to anticipated decrease in the domestic debt.
Similarly, the external sector’s overall balance for FY 2023-2024 improved significantly, reaching Nu 9,848M in the 4th quarter, up from Nu 1,283M in the 3rd quarter. This improvement was primarily driven by an increase in the financial account during the 4th quarter, which was boosted by a higher inflow of hydropower and the government’s convertible currency loans.
Additionally, the rise in non-hydro merchandise exports, which grew from Nu 40,980M in the 3rd quarter to Nu 44,159M in the 4th quarter, also contributed to the betterment of the Balance of Payments (BOP).
The BOP is expected to improve further, supported by anticipated increases in hydropower exports and higher inflows of grants and loans from development partners.
As a result, the gross international reserves at the end of the fiscal year 2023-2024 stand at USD 681.44M, sufficient to cover 14.3 months of essential imports. This is an improvement from the USD 551M estimated during the 3rd quarter update, according to the Finance Ministry.
Similarly, the reserve position is projected to strengthen further due to expected increases in capital inflows, service earnings from tourism, and continued growth in non-hydro merchandise exports.
Meanwhile, the current account deficit improved from Nu 81,198M in FY 2022-23 to Nu 56,316M by the end of FY 2023-24. However, in the 4th quarter, the Current Account Balance (CAB) worsened, reaching Nu 56,316M compared to Nu 51,039M in the 3rd quarter.
This decline according to the Ministry was mainly due to an increase in service imports during the 4th quarter compared to the 3rd quarter. Nevertheless, CAB is expected to improve further in the medium term due to projected increase in financial and capital accounts, and rise in non-hydro exports.
By Sherab Dorji, Thimphu