Bhutan’s public debt drops by 1.11bn

The hydropower debt constituted 73% of the total external debt and accounted for 85.9% of the FY 2021-22 GDP estimate as of December 31, 2021

Bhutan’s total public debt dropped by Nu 1.1bn in the last quarter of 2021, from Nu 240.89bn to Nu 239.79bn, with the debt accounting for 126.8% of the GDP for the Financial Year (FY) 2021-22.

This decrease has been attributed to the redemption of T-Bills stocks of Nu 4bn, from which after deducting Nu 2.89bn increase in external debt stock comes to Nu 1.1bn.

According to the public debt report, the external debt stock increased by Nu 2.89bn mainly on the account of disbursement of USD 30mn by the ADB for the financial market development program during the second quarter of the FY.

In addition, the disbursement of INR 800mn for the ongoing hydropower projects during the second quarter increased the external debt.

“The hydropower debt as of December 31, 2021 constituted 73% of the total external debt and accounted for 85.9% of the FY 2021-22 GDP estimate. The hydro debt stock comprises debt stock of six hydropower projects, namely MHPA, Puna-I, Puna-II, Nikachu, Dagachu, and Baoshu (upper and lower stage),” the report states.

However, the non-hydro debt stood at Nu 60.2bn, constituting 27% of the total external debt and 31.8% of the FY 2021-22 GDP, which is well within the 35% threshold prescribed by the Public Debt Policy 2016.

As of December 31, 2021, the INR-denominated debt accounted for 69.7% of the total external debt, of which 95.5% was hydropower related.

Further, the Convertible Currency (CC) debt stock stood at US $906.74mn, equivalent to Nu 67.53bn, accounting for 30.3% of the total external debt. The external debt consists of government debt, corporate debt, and central bank debt.

As per the report, the government debt amounted to Nu 206.69bn, that is 92.8% of the total external debt, which includes debt on account of borrowings for budgetary activities, development of hydropower projects and project loans availed by the government and on-lent to public corporations.

Almost 78% of the government debt accrued from lending out money to public corporations and hydropower debt. The corporate debt of Nu 9.02bn accounted for 4.1% of the total external debt. The corporate debt pertains to debts directly contracted by the public corporations, such as the loan from the SDF availed by the Druk Air Corporation Limited, loans from the ADB, the EXIM Bank of India and the State Bank of India contracted by the Tangsibji Hydro Energy Limited.

The Central Bank debt, on account of Standby Credit Facility availed from Government of India (GoI) during the Rupee crunch in the year 2011-12, accounted for 3.1% of the total external debt.

Meanwhile, the Government of India (GoI) remains the country’s largest creditor. As of December 31, 2021, 68% of Bhutan’s external debt was owed to the GoI, followed by 14% to the ADB and 12% to the IDA. The rest, about 6%, were owed to the IFAD, JICA, GoA, SBI/EXIM Bank and SDF combined.

As of December 31, 2021, bilateral debt accounted for 72% of the total external debt while the multilateral debt accounted for 28%.

Almost three-fourth (73%) of the external debt was on account of debt contracted for financing hydropower developments, followed by debt contracted for policy and budget support from the World Bank and ADB. Rests are on account of borrowings for financing infrastructure development, such as rural electrification, road connectivity, trade infrastructure, and urban development.

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

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

Meanwhile, the total domestic debt stock as of December 31, 2021 stood at Nu 17.07bn, accounting for 11.1% of the GDP and 8.7% of the total public debt stock. The domestic debt mainly comprised T-Bill stock of Nu 13bn and the government bond of Nu 3.7bn issued in February 2021.

In addition, the balance was loan outstanding to the National Pension and Provident Fund (NPPF) borrowed to construct staff quarters for the Phuentsholing Hospital and the liquidation of the Bhutan Hydropower Services loan to the Deutsche Investitions Germany.

Kinley Yonten from Thimphu