Domestic debt saves the day

Low percentage of domestic debt intricately balances the increasing national debt, marginally maintaining a sustained economic growth indicator

Bhutan’s latest domestic debt stands at Nu 26.1 Billion (B), accounting for approximately 12% of the estimated Gross Domestic Product (GDP). While domestic debt constitutes a significant portion of the GDP, it also represents a meager 9.6% of the total public debt stock, reflecting the intricate balance required to maintain sustainable economic growth.

The domestic debt recorded a decrease of 5.31% compared to the same period last year, which was by Nu 1.46B. The domestic debt has also decreased by 20.4%, which is by Nu 6.69bn compared to the domestic debt at the end of the previous quarter, owing to improvements in domestic revenue inflows and the settlement of ways and means advances (WMA) and overdrafts outstanding during the period.

According to the Finance Ministry’s quarterly report, the domestic debt is composed of Nu 7.3B in treasury bills and Nu 18.8B in government bonds.

The report also shows that the national debt decreased by almost Nu 4B which represents decrease by 1.5% in the three month period from June to September end this year, taking the total public debt to Nu 272.97B compared to a total public debt of Nu 276.98B at the end of June this year. The national debt now stands equivalent to 134.8% of the GDP. The decrease in the national debt is attributed due to a decline of about 20% in domestic debt.

On the other hand, external debt recorded an increase from Nu 246.87B in June, to Nu 244.28B as of September which shows a raise by 1.1%.

As of September, the convertible currency (CC) debt stood at Nu 84.03B, equivalent to USD 1.059B and representing 35.7% of the total external debt. The Ngultrum value of CC debt stock increased by Nu 4.14B, largely owed to the ongoing project-loan disbursement during the quarter, and the depreciation of BTN against USD.

Government debt accounted for 92% of the total external debt which is recorded at Nu 227.03B. At the same time, corporate debt of Nu 12.83B borrowed by the public corporations represents 5.2% of the total external debt.

Despite seeing a decrease in the external debt denominated in INR by Nu 1.46B on account of the repayment of Mangdechhu and Nikachhu loans, there was a Nu 4.14B increase in the CC debt. The World Bank’s budgetary support loan amounting to USD 50.2M, or Nu 4.13B for Bhutan’s Second and Resilient Growth Policy Credit in August 2023 increased the CC debt.

The central bank debt amounted to Nu 7B, and the standby credit facility with the Government of India (GoI) made up 2.9% of the total external debt in the third quarter of 2023.

Hydro-debt of six hydropower projects in Mangdechhu, Puna-I, Puna-II, Nikachhu, Dagachhu, and Basochhu stood at Nu 167.1B which represents 67.7% of external debt as of September this year. INR-denominated hydropower debt accounted for Nu 158.7B of total external debt.

On the other hand, non-hydro debt is reported at Nu 79.77B, which represents 32.3% of total external debt and 39.4% of GDP.

According to the finance ministry, the debt service as a percentage of government revenue is estimated at 32.4% for this fiscal year, which is within the threshold of 35% in the Public Debt Management Policy 2023.

The non-hydro budgetary debt is at Nu 90.6B, constituting 33.2% of total public debt and 44.8 percent of estimated GDP. This is within the threshold of 55% of GDP annually as per the Public Debt Management Policy 2023.

The Government of India remains the country’s largest creditor with 63% of external debt, followed with 16% by the Asian Development Bank (ADB) and 15% by the International Development Association (IDA), amongst others.

The report states that despite elevated levels of total public debt at 134.8% and external debt at 119.0% of GDP, “the overall risk is deemed manageable, and external debt distress is considered moderate.”

The debt services as a percentage of government revenue is estimated at 32.4% for FY 2023-24 which is within the threshold prescribed in the Public Debt Management Policy of 2023.

Nidup Lhamo from Thimphu