The Bhutanese Leading the way.
As per the Macroeconomic Second Quarter Report by the Ministry of Finance (MoF) projections indicate a substantial rise in public debt for the fiscal year 2023-24.
According to the latest data released, the total public debt is estimated to soar to Nu 306.128 billion (bn) representing 114.7 percent of the country’s GDP.
The figures underscore a complex interplay of factors driving this surge. Notably, the increase in domestic debt by Nu 985.9 mn aims to address the pressing financing gap, indicating the government’s commitment to bolstering domestic resources for developmental initiatives.
However, the most significant spike is observed in external debt, projected to escalate by Nu 28.165 bn. This surge is primarily attributed to disbursements earmarked for critical infrastructure projects, including the Punatsangchhu-I (PHPA-I) and Punatsangchhu-II (PHPA-II) hydropower ventures, alongside investments in small hydropower projects and external budgetary borrowings.
According to the Asian Development Bank (ADB), Bhutan’s significant current account deficit has resulted in a 20 percent decrease in foreign exchange reserves. This decline is particularly concerning, as the majority of our imports are denominated in Indian Rupee (INR), and any reduction in earnings from hydropower exports exacerbates the issue.
In 2023, the country saw a modest decrease in public external debt by 2.9 percentage points, amounting to 101.9 percent of GDP. Notably, hydropower debt constituted 66.3 percent of this total. A significant portion of the public external debt, approximately 64.3 percent, was owed to India, with hydro debt accounting for 93.8 percent of this sum. These hydro debts are considered self-liquidating owing to a long-term power purchasing agreement with India.
The MoF’s report sheds light on the strategic importance of these investments in driving Bhutan’s economic growth and energy security. The PHPA projects, in particular, hold immense potential to harness Bhutan’s abundant hydropower resources, thereby contributing to regional energy stability and revenue generation.
However, concerns linger regarding the sustainability of the escalating debt burden, especially in the context of the country’s GDP ratio. While infrastructure investments are imperative for unlocking development potential, prudent debt management strategies become indispensable to mitigate associated risks and ensure fiscal resilience.
