With external debt projected to reach Nu 258B by the end of 11th Plan

RAA Report: The country’s total debt reached Nu 118.5B (billion), constituting more than 95 percent of the gross domestic product, as of March this year, the Public Accounts committee’s (PAC) report to the Parliament stated.

The PAC presented the Royal Audit Authority’s (RAA) report on debt management to the joint sitting of the Parliament on May 15.

Outstanding external debt is projected to more than double to Nu 258.8B by the end of 11th Plan, 73 percent of which would be rupee loan, the audit’s report published last year states.  Hydropower debt is projected to reach Nu 211B, 99 percent of GDP.

The report also stated that lack of clear policies and absence of maximum debt ceiling could expose huge risks and push the country to borrow excessively.

While presenting the report, PAC’s chair, Choida Jamtsho, said the finance ministry had now drafted a policy in consultation with economic affairs ministry, central bank, Gross National Happiness Commission (GNHC) and the National Statistics Bureau.

The PAC also stated that there are different institutions managing different loans and that there was a need to harmonise existing laws.

According to the audit report, both the Constitution and the Public Finance Act hold the finance ministry responsible to manage public debts.  However, RAA found that different agencies and divisions were involved in debt mobilisation and management.

For instance, hydropower debts were executed and managed by the economic affairs ministry, including the signing of loan agreements.  It was also found that periodic reporting and settlement of these debts did not exist between the finance and economic affairs ministries.  The Act states that the finance minister must sign all loan and grant agreements.

However, RAA found that GNHC has taken over the role of mobilising external grants, coordinating directly with donors, which could result in wrong borrowing decisions.

While hydropower loan may be considered self-liquidating, the PAC found that there was an increasing trend due to change in funding pattern.

Hydropower loans, as of March this year, reached Nu 81.5B (65 percent of GDP) attributing for most of the rupee loan (78.1B).

The committee also cautioned that aid flow would be less forthcoming and more stringent terms would be placed on loans as Bhutan graduates from a low income to middle income in a few years.  Thus, it recommended for an appropriate strategy to facilitate a smooth transition.

The committee recommended that a public debt management Act be enacted to confer legal authority to the debt policy.

The PAC also supported the upgradation of the debt management division into a separate department within the finance ministry and equip it with technical expertise.

It was found that a major portion of debt pertained to investment made in hydropower projects in the last two plan periods.  By the end of the ninth plan, debt constituted 70 percent of the GDP and this rose to 92 percent by the end of the 10th Plan.

Debt to GDP ratio is however projected at 121 percent by end of 11th Plan.

The house will deliberate on the report today.

By Tshering Dorji