Debt level high, but modest risk: IMF

October 21 | Kuensel
By Tshering Dorji, Washington DC

The country’s external debt has touched Nu 188 billion (B) as of June this year, which is 114 percent of the GDP, the highest since 2015.

Of the total debt, more than Nu 138B, about 73 per-cent is attributed to Rupee debt, according to figures from the monthly statistical bulletin of the Royal Monetary Authority (RMA).

The loan denominated in convertible currency to the tune of Nu 4.9B are mostly availed from the World Bank, Asian Development Bank, IFAD, JICA and government of Austria. World Bank and ADB’s loan alone accounts for more than 75 percent of the total convertible currency loan.

Of the total rupee loan, hydropower loan accounts for more than 95 percent of the portfolio. While Tala and Chukha hydropower plants have already liquidated the loan, the debt pertains to Punatsangchhu I and II, Mangdechhu and Nikachhu. The outstanding loan for the two projects in Punatsangchhu has already crossed Nu 40B each.

While the concern on mounting external debt is growing, the IMF says that Bhutan’s risk of debt distress is modest.

The IMF deputy director of the Asia-pacific, Anne-Marie Gulde told Kuensel that high level of debt to GDP is a concern, but IMF does not make its assessment simply by looking at the numbers and external mechanics.

“We are looking at what is the expected income stream that will come from hydro-power and what is the gross impact,” she said. “We have indeed done a very careful assessment of the situation in Bhutan.”

Bhutan, she said is one of the few countries where the analysis really led to the fact that this was an equity type debt. The fact that the revenue from hydropower will service its debt and the buyer, India, has contractual obligation to buy electricity, she said reduces the risk compared with other investments where return was uncertain.

“This said, we will take an-other look next year,” she said.

Despite the slowdown in construction of hydropower, the IMF in its economic outlook has projected the country’s growth in 2019 at 5.5 percent and 7.2 percent in 2020. One of the reasons could be attributed to the commissioning of Mangdechhu.

Anne-Marie Gulde agreed that growth in Bhutan is de-pendent on implementation of hydropower projects and export of electricity.

While economic diversification is the key to addressing the economic vulnerability, she said Bhutan face more challenges than other countries, given its remote location, small population and transportation issues.

“It is more difficult to improve conditions for private sector,” she said adding that the country should focus on niche products and small enterprises. The IMF, she said will come out with a paper ‘pivot to South Asia’ reflecting on addressing the economic diversification challenges.

“Bhutan is only one country that measures growth with GNH indicator and we are looking at it with great interest,” she said.

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