Bhutan's debt increasing at 9.5 per cent, India largest creditor

THIMPHU: Bhutan's outstanding external debt grew by 9.5 per cent between June 2013 and June 2014, with hydropower loans from India forming a major chunk of the Himalayan country's total borrowings.
Indian rupee debt constitute 64 per cent of Bhutan's total owings and hydropower loans now account for 83.4 per cent of the country's total outstanding rupee loan as of June 2014, the Kuensel newspaper reported.

The Royal Monetary Authority (RMA) in its annual report said that Bhutan's debt swelled to $1.8 billion in 2014 from $1.6 billion in June 2013.

Its Rupee debt also increased from Rs 67.8 billion in June to Rs 74.9 billion in September last year, mainly on account of disbursements of rupee loan for the ongoing hydropower projects.

Hydropower loans now account for 83.4 per cent of outstanding rupee loan as of June 2014, against about 70 per cent in 2013, the report said.

This was because rupee loan through the overdraft facility from state-run Indian banks State Bank of India and Punjab National Bank has been either liquidated or not renewed.

The INR swap loan from the Reserve Bank of India was also repaid in September 2013, which is why the hydro-loan accounted for a majority of the rupee debt.

As of fiscal year 2013-14, disbursement for Punatshangchu - I amounted to Rs 25.7 billion, and Rs 14 billion for Punatshangchu II. Disbursement towards Mangdechu hydropower projects amounted to Rs 10.4 billion.

The RMA report also stated that actual interest payments on hydropower debt denominated in Indian rupees amounted to Rs 1.4 billion last year. However, it also highlighted that the accrued interest on the three ongoing hydropower projects amounted to almost Rs 3.6 billion.

Although the government, both the former and the current, has stressed that hydropower debts are self-liquidating, some economists warn that hydropower loans are susceptible to time and cost overruns, thereby increasing the debt burden.

Besides India, the largest creditor to the country was the Asian Development Bank, followed by government of Austria.