Reposted from Kuensel

Bhutan continues to remain highly indebted, despite its economy expanding in terms of gross domestic product (GDP).

The country’s GDP increased by Nu 13B to touch Nu 85B (measured in current prices) in 2011, compared with the previous year, according to data contained in the national accounts statistics.

This means the country produced goods and services worth Nu 85B in 2011.  But at the same time, it owed Nu 76B in the form of loans taken from abroad.

Bhutan’s debt to GDP ratio, which measures the country’s debt against the size of its economy, stood at 89 percent.  This means, if you had Nu 100 in your pocket, Nu 89 is made up of loans, borrowed from others.

Experts, economists and central bankers have repeatedly described most of the country’s debts as self-liquidating, since around 70 percent of it is for hydropower, which will be paid back once the projects are commissioned.

The World Bank has categorised Bhutan under the “moderate risk of distress,” which means, debts are within manageable bounds but, if it continues to rise, the economy might become insolvent.

Of the total liabilities, rupee debt stands at Nu 45B, of which 71 percent is on hydropower.

Short-term liabilities, which include rupee borrowings from the commercial banks in India, and from the government of India line of credit, as well as for the Dungsam project, is 28 percent of the total rupee debt.

Short-term rupee borrowings totalled Rs 13B, of this, Rs 6B is from GoI, Rs 5.1B from the State Bank of India and Punjab National Bank.  Borrowings for Dungsam was Rs 1.8B.  Convertible currency debt was Nu 30.9B.

Economists are of the view that, although, the external debt is as big as the economy, there was nothing to worry about.  Investments in the hydropower may lead to outflows, as a result of auxiliary investments, such as in labour, trucks, machinery and transportation.

But all these costs are already accounted for in the cost of the project, and the Indian government has already committed separate funds for the hydropower projects.

“Initially, it might lead to some outflows, but the money utilised in transportation, trucks and machinery and labour payments is already accounted for,” an economist said.

The country’s total foreign exchange reserve stood at USD 736, which is short by USD 26M, while adding up all the requirements it has to meet.  The requirements are meeting one year of essential import, back up currency for ngultrum in circulation, collaterals for short-term rupee borrowings from India, and convertible currency debt repayment.

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