Though severely indebted, Bhutan is at a moderate risk of distress
13 December, 2009 – Bhutan is paying Nu 3.8 billion annually to service an outstanding debt of Nu 35b as of October this year, which is five billion less than the cost of the 1020 MW Tala project.
The debt, as a percentage of GDP, is 53 percent with hydropower debt at Nu 21.5b and non-hydropower debt at Nu 13.5b.
The debt figures do not take into account the Rs 5b borrowed this year from India to meet domestic rupee requirements, said Tshewang Norbu of the finance ministry. who made a presentation of the debt situation at a national workshop on strengthening responses to the global financial crisis.
Whether Bhutan’s debt levels were sustainable was one of the topics discussed at the three-day workshop, which brought together high officials and experts from Bangladesh, India, Pakistan and Thailand and the international monetary fund and the international finance corporation.
Tshewang Norbu said that, although Bhutan’s debt as a percentage to GDP might be high, he said that it must be seen in the context of the ability to pay. “Most of our debt is in the hydropower sector, which is not only self financing but also brings in extra revenue,” he said. On the non-hydropower debt, he said that most were concessionary loans from development banks with very long repayment terms.
According to Dr H K Pradhan, a professor of finance and economics at XLRI Jamshedpur, India, sustainability indicators between 2005-07 placed Bhutan in the category of severely indebted countries when compared to other countries in the region. However, the same report puts Bhutan’s debt at a moderate risk of distress, because Bhutan’s major energy projects were absent of commercial risk and the country’s high level of foreign exchange reserves. “If you look at the stock of debt, Bhutan might be exceeding the thresholds, but if you look at the liquidity indicators, Bhutan is in an excellent position,” he said. The professor added that Bhutan needed to undertake regular debt sustainability analysis to identify emerging stresses.
The RMA director Daw Tenzin said that, although in the medium term Bhutan seemed to be in a good position where external debt was concerned, there were risks. “If you look at the global crisis now, it’ll eventually turn into a big debt issue because any stimulus plan to revive the economy, if not effective, will highly indebt the government,” he said. “We already have a huge private sector debt and, if we’re not careful with the commercial borrowing that the private sector is pushing for, it could create problems.”
Nagesh Kumar, ESCAP’s chief economist, said the most important challenge is using debt for productive purposes. “Other countries have a lower debt threshold, but they’re in deep trouble because much of their debt isn’t used productively, may be used for consumption purposes, therefore policy is important to show that the money, which Bhutan has borrowed, should be used to create the productive capacity of the country,” he said.
The workshop, which was hosted by RMA and organised by ESCAP and UNDP, also discussed fiscal policy challenges and the impact of the global financial and economic crisis.
By Phuntsho Wangdi