Min­istry of fi­nance launches the pub­lic debt pol­icy

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The Min­istry of Fi­nance launched on 7 Septem­ber in Thim­phu the Pub­lic Debt Pol­icy to proac­tively guide its in­vest­ment and en­sure that fi­nanc­ing de­ci­sions are pru­dent and pub­lic debt is main­tained at a sus­tain­able level.

The thresh­olds set out in the pol­icy have been framed in a man­ner that al­lows Bhutan to con­tinue to pur­sue and op­ti­mize its hy­dropower re­sources. The draft pol­icy pro­vides debt thresh­olds for non-hy­dropower debt and hy­dropower debt.

The thresh­old for non-hy­dropower ex­ter­nal debt stock can­not ex­ceed 35 per­cent of gross do­mes­tic prod­uct dur­ing a five-year pe­riod, while the gen­eral govern­ment debt shouldn’t ex­ceed 22 per­cent of do­mes­tic rev­enue in any given year.

The hy­dropower-re­lated ex­ter­nal debt has to be main­tained a ra­tio of hy­dropower debt ser­vice to hy­dropower ex­port rev­enue within 40 per­cent, in any given year.

The over­all thresh­old for to­tal ex­ter­nal debt is pro­vided in terms of debt ser­vice ra­tio (ra­tio of an­nual debt ser­vice obli­ga­tion to ex­ports of goods and ser­vices) which shall not ex­ceed 25 per­cent.

The thresh­olds are to re­duce the un­due debt bur­den that might arise from in­dis­crim­i­nate bor­row­ing for so­cial projects which do not nec­es­sar­ily gen­er­ate fi­nan­cial re­turns.

The con­sid­er­a­tions are aimed at en­sur­ing fis­cal dis­ci­pline and avoid adhoc, short-term bor­row­ing which are gen­er­ally costly.

The pol­icy ex­tends to all pub­lic and pub­licly guar­an­teed ex­ter­nal and do­mes­tic debt of Bhutan. How­ever, given the nascent stage of de­vel­op­ment of do­mes­tic debt mar­ket, the thresh­olds in the pol­icy shall ap­ply only to ex­ter­nal debt, un­til the thresh­olds for do­mes­tic debt can be de­ter­mined to com­pli­ment the pol­icy.

The broad guid­ing prin­ci­ples for rais­ing debt are cat­e­go­rized by type of li­a­bil­ity (di­rect or con­tin­gent) and by sec­tor of bor­rower (Gen­eral Govern­ment, Pub­lic Cor­po­ra­tions and RMA).

The pol­icy was for­mal- ly ap­proved by Lhengye Zhungt­shog dur­ing the 109th Ses­sion held on 2 Au­gust 2016.

The pol­icy is gov­erned by the Con­sti­tu­tion of the King­dom of Bhutan, the Pub­lic Fi­nance Act of Bhutan 2007, the Au­dit Act of Bhutan 2006 and the Royal Mon­e­tary Author­ity of Bhutan Act 2010.

The pol­icy was drafted by a com­mit­tee com­pris­ing mem­bers from Min­istry of Fi­nance, Royal Mon­e­tary Author­ity, Gross Na­tional Hap­pi­ness Com­mis­sion Sec­re­tariat, Na­tional Statis­tics Bureau and Depart­ment of Hy­dropower and Power Sys­tems with the expert as­sis­tance from the Asian De­vel­op­ment Bank and World De­vel­op­ment Bank.

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