The Bhutanese Leading the way.
The Member of Parliament (MP) for Gangzur Minjey constituency, Loday Tsheten, raised concerns in the National Assembly regarding currency depreciation risks and the sustainability of the country’s external debt portfolio, particularly non-hydropower debt denominated in convertible currencies.
Citing the Debt Situation Report, the MP stated that Bhutan’s total public debt as of 31st March 2026 stood at Nu 306.3 billion (bn), equivalent to 90.6 percent of the country’s GDP. Of this amount, Nu 285.2 bn constituted external debt. According to the report, 58.3 percent of the external debt is hydropower-related, while the remaining 41.7 percent is non-hydropower debt.
The MP stated that a significant share of Bhutan’s non-hydropower external debt consists of borrowings from multilateral institutions such as the World Bank and the Asian Development Bank, which are denominated in US Dollar (USD) and SDR-linked currencies. He also highlighted concerns regarding the medium- to long-term depreciation of the Indian Rupee (INR) against the USD, which Bhutan indirectly experiences through the Ngultrum’s peg to the INR.
The MP questioned the Ministry of Finance (MoF) on the proportion and amount of Bhutan’s non-hydropower external debt denominated in USD and SDR-linked currencies, whether the ministry had conducted stress tests to assess the impact of future INR depreciation on Bhutan’s debt obligations, the estimated repayment burden under different exchange rate scenarios, and whether the government had any policy or hedging strategy to manage foreign exchange exposure.
Responding to the questions, the Minister of Finance, Lyonpo Lekey Dorji, stated that Bhutan’s external debt portfolio continues to be dominated by concessional borrowings aimed at supporting the country’s socio-economic development priorities. He said that while the overall debt situation remains sustainable under the existing debt management framework, the growing share of debt denominated in convertible currencies requires close monitoring, especially due to global exchange rate volatility and Bhutan’s currency peg to the Indian Rupee.
Lyonpo Lekey Dorji stated that the MoF is strengthening its debt management and risk assessment practices to ensure that potential foreign exchange exposures and repayment risks are carefully monitored and managed in a fiscally sustainable manner. He also acknowledged that the government remains aware of the risks arising from exchange rate movements, particularly in relation to non-hydropower external borrowings in convertible currencies.
According to Lyonpo Lekey Dorji, Bhutan’s total convertible currency debt amounts to Nu 98,269.962 million (mn), of which Nu 91,875.469 mn relates to non-hydropower external debt. He stated that a substantial portion of this debt consists of concessional borrowings from multilateral development partners such as the World Bank and the Asian Development Bank.
Lyonpo Lekey Dorji stated that the MoF regularly carries out Debt Sustainability Analyses internally and in collaboration with institutions such as the International Monetary Fund and the World Bank. He said these assessments include various risk indicators, including exchange rate and currency-related risks. In addition, the ministry conducts quarterly cost and risk indicator assessments to monitor developments in the debt portfolio and related vulnerabilities.
Regarding the impact of INR depreciation against the USD, the minister stated that the ministry undertakes scenario-based analyses and repayment projections using different exchange rate assumptions for internal policy and risk management purposes. However, he explained that detailed scenario estimates and repayment sensitivities are not publicly disclosed because such information could affect the government’s position in ongoing and future negotiations with hedge and guarantee providers.
Lyonpo Lekey Dorji further stated that the MoF is already engaging with hedge and swap providers at the technical level to explore possible hedging transactions. He added that the government is assessing the institutional, policy, and operational frameworks required for Bhutan to undertake such transactions effectively, particularly because any hedging arrangements would likely involve proxy currencies.
Lyonpo Lekey Dorji also stated that the ministry has already begun contracting new debt from the International Bank for Reconstruction and Development and the International Finance Corporation with provisions that include the option for cross-currency swap conversion.
