Bhutan - Joint Bank-Fund Debt Sustainability Analysis : 2018 Update (English)

The assessment of Bhutan’s external risk has not changed materially from the 2016 DSA. Given the unique nature of the bulk of Bhutan’s debt stock, as spelled out in the 2014 and 2016 Debt Sustainability Analysis (DSAs), the risk of debt distress is assessed... See More + The assessment of Bhutan’s external risk has not changed materially from the 2016 DSA. Given the unique nature of the bulk of Bhutan’s debt stock, as spelled out in the 2014 and 2016 Debt Sustainability Analysis (DSAs), the risk of debt distress is assessed to remain moderate despite breaches in all five indicators under the baseline. The unique mitigating circumstances are as follows. A large share of outstanding public and publicly guaranteed debt external debt is linked to hydropower project loans from the government of India (GoI). These projects are implemented under an intergovernmental agreement in which the GoI covers both financial and construction risks of the projects and buys surplus electricity at a price reflecting cost plus a fifteen percent net return. Debt dynamics are set to improve over the medium term driven by a significant increase in electricity exports and decline of imports associated with hydropower construction. While India’s political commitment to increase its reliance on clean energy continues to provide reliable demand, India’s recent power surplus and financing models for new projects where the construction risk is not guaranteed by India are sources of risk.  See Less -