The Ministry of Finance (MoF) has introduced a new policy framework to strengthen the management of sovereign guarantees and government on-lending, with the aim of containing fiscal risks and ensuring that public resources are directed towards economically viable and strategically important investments.
The Sovereign Guarantee and On-Lending Framework 2026 and its accompanying Assessment Methodology Manual for Sovereign Guarantee and On-Lending Framework 2026 came into force on 1 August 2026.
The new framework establishes a formal system governing the policy, governance, eligibility, approval, pricing, monitoring and reporting requirements for sovereign guarantees and on-lending arrangements.
The Ministry said the framework is intended to ensure that government support provided through these instruments is delivered in a transparent, consistent and risk-based manner, while safeguarding fiscal sustainability and limiting contingent liabilities.
Sovereign guarantees are government commitments to meet financial obligations if the primary borrower fails to do so. On-lending, meanwhile, involves the government borrowing funds and subsequently lending them to eligible entities or beneficiaries. Both instruments can facilitate access to financing for development priorities but can also expose the government to financial and fiscal risks.
The new framework therefore places greater emphasis on assessing those risks before government support is extended.
Alongside the framework, the Ministry has introduced an Assessment Methodology Manual to standardize the technical assessment of proposed sovereign guarantees and on-lending arrangements.
The manual provides procedures for credit risk assessment, fiscal risk quantification, risk-based pricing, collateral and other risk-mitigation measures, and portfolio monitoring. The introduction of standardized assessment procedures is expected to provide a more consistent basis for evaluating requests for government-backed financing.
Under the new approach, the financial and fiscal implications of government support can be assessed before commitments are made, allowing authorities to consider the risks associated with individual projects as well as their potential impact on the government’s broader fiscal position.
The Ministry said the implementation of the two instruments is intended to ensure that government support is channeled towards investments that are economically viable and strategically important.
At the same time, the framework seeks to ensure that such support does not create excessive contingent liabilities for the government.
The framework also introduces requirements for monitoring and reporting, placing responsibilities on relevant agencies and beneficiaries to provide timely and accurate information.
The Ministry has called on relevant agencies, beneficiaries and other stakeholders to cooperate fully in implementing the framework and methodology. In particular, stakeholders are expected to provide accurate and complete financial, operational and project information, comply with reporting and monitoring requirements, and effectively implement agreed risk-mitigation measures.
The Ministry said such cooperation would be essential to strengthen fiscal discipline, accountability and transparency. The framework comes as the government seeks to ensure that public financing and government-backed financial support are aligned with national development priorities while maintaining long-term fiscal sustainability.
Rather than treating sovereign guarantees and on-lending simply as mechanisms for facilitating access to finance, the new framework establishes a structured approach that considers the potential fiscal exposure associated with each arrangement.
The risk-based approach also allows the government to take into account the creditworthiness of beneficiaries, the financial viability of projects and appropriate measures to mitigate potential losses.
The Assessment Methodology Manual further provides a common technical basis for determining risks and monitoring the government’s exposure after financing has been approved.
For government agencies and beneficiaries seeking sovereign guarantees or on-lending support, compliance with the new framework will therefore become an important part of the financing process.
By strengthening risk assessment, pricing, monitoring and reporting, the government aims to ensure that public resources are used efficiently while reducing the potential fiscal consequences of poorly managed financial commitments.
The ultimate objective, according to the Ministry, is to support national development priorities without compromising prudent fiscal risk management and long-term fiscal sustainability.
Tashi Namgyal, Thimphu
