Total public debt increased by 3.3% in March-end

The total public debt accounted for 130.9% of the FY 2021-22 GDP estimate

The total public debt increased by Nu 7.88bn in the three months period from January to March-end this year.

The total public debt stood at Nu 247.68bn as of March this year from the total public debt of Nu 239.79bn at December end of last year.

However, the total public debt stock increased by 3.3% and the total public debt accounted for 130.9% of the FY 2021-22 Gross Domestic Product estimate. The increase was mainly on account of the issuance of new T-bills during the quarter, according to the public debt situation quarter report as of March-end.

The report states that the external debt stock decreased slightly by Nu 610.526mn with 0.3%. It is mainly on account of the Mangdechhu Hydro Project Authority (MHPA) repayment in January this year.

The domestic debt stock, on other hand, increased by Nu 8,500mn with 49.8%, compared to the domestic debt stock in December last year. The increase was due to the issuance of additional T-Bills during the quarter.

The report bifurcates the external debt into three categories, including government debt, corporate debt, and Central Bank debt as of March-end of this year.

It states that the government debt amounted to Nu 205.89bn, accounting for 92.7% of the total external debt. The government debt includes debt on account of borrowings for budgetary activities, the development of hydropower projects, and project loans availed by the government and on-lent to public corporations.

“Almost 78% of the government debt pertained to on-lending to public corporations and hydropower debt,” the report states.

The corporate debt of Nu 9.20bn accounted for 4.1% of the total external debt. The corporate debt pertains to debts directly contracted by the public corporations, such as a loan from the SDF availed by Drukair, and loans from the ADB, EXIM Bank of India and State Bank of India contracted by the Tangsibji Hydro Energy Limited.

The Central Bank debt, which is on account of the Standby Credit Facility availed from the Government of India (GoI), accounts for 3.2% of the total external debt, the report states.

External Debt

As of March-end of this year, the hydropower debt constituted 73% of total external debt and accounted for 85.7% of the estimated GDP. The hydro debt stock comprises the debt stock of six hydropower projects, namely the MHPA, Puna-I, Puna-II, Nikachu, Dagachu, and Baoschu.

An official from the Ministry of Finance (MoF) said that though the total public debt level remains elevated at 130.9% of the GDP, the overall risk is deemed manageable.

He shared that the major portion of the external debt is on account of hydropower projects which are deemed commercially viable, with a ready export market in India. “In addition, 91.2% of the hydro debt is denominated in INR, which does not pose any exchange rate risks as the Ngultrum is pegged at par with the INR.”

Further, the non-hydro debt stood at Nu 59.9bn, constituting 27% of total external debt and 31.7% of the estimated GDP. The non-hydro debt to GDP of 31.7% is within the 35% threshold prescribed by the Public Debt Policy 2016.

As of December last year, almost 73% of the external debt was on account of debt contracted for financing hydropower developments in the country, followed by debt contracted for policy and budget support from the World Bank and ADB at 13.7% of the total external debt.

“Rest are on account of borrowings for financing infrastructure development in the country, such as rural electrification, road connectivity, trade infrastructure, and urban development,” the report states.

However, the external debt servicing in the FY 2021-22 is expected to increase by more than 100% compared to the prior year’s external debt servicing, mainly because of full annual debt servicing for MHPA and liquidation of Standby Credit Facility of INR 4,000mn.

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.

Domestic Debt

The total domestic debt stock stood at Nu 22.57bn, accounting for 11.9% of the GDP and 7.1% of the total public debt stock.

Although 72.4% of domestic debt is mostly T-Bills, officials from the finance ministry said that it would be maturing within one year, and the refinancing risks are low due to the current liquidity glut with the banks, the main investors of T-Bills.

However, in the medium-term, if the COVID-19 situation improves and bank lending activities pick up, such a high level of T-Bills could pose refinancing risks, he added.

According to the report, the domestic debt includes the T-Bill stock of Nu 18,500mn and the government bond of Nu 6,700mn.

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 (DEG), Germany, the report states.

Thus, the domestic debt increased by Nu 8,500mn compared to the domestic debt at the end of the previous quarter due to the issuance of additional T-Bills during the quarter.

Kinley Yonten from Thimphu