Ministry of finance launches the public debt policy
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.