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Report on Bhutan FY17 indicates debt reduction in hydropower sector

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Bhutan released a report this week containing information that says during Fiscal Year 2017 (FY17), the country reduced its hydropower-related debt by about US$48.3 million.

The hydro debt reduction may seem relatively small, but the news is a positive signal because since FY11, Bhutan debt related to hydro significantly increased.

Information in “The Royal Monetary Authority (RMA) of Bhutan Annual Report: Fiscal Year 2017,” says compared to about US$495 million of investment in FY11 for hydropower, the amount of debt in FY17 for the industry had almost quadrupled to about $1.95 billion.

The report details investment amounts that helped Bhutan maintain economic growth for hydropower, which again leads earnings in the export sector of the country's economy. In FY16, hydropower was Bhutan's largest export, accounting for 32.4% of the country's total exports and 8% of its gross domestic prouct (GDP).

Asian Development Bank’s “Outlook 2017," report released in April of that year forecast that Bhutan’s economy was expected to grow 8.2% in FY17 and surge to 9.9% in FY18.

In February 2017, HydroWorld.com detailed a number of Bhutan hydropower projects either in operation or being developed as important to the country’s economy. 

The report released this week says despite Bhutan’s high level of debt, the “2016 Debt Sustainability Analysis,” conducted in a joint venture by the World Bank and International Monetary Fund, indicates “Bhutan is at moderate risk of debt distress based on unique mitigating factors.”

One of the most notable factors, according to the analysis, is the large share of external debt linked to loans from India that cover Bhutan’s financial and construction risks related to hydropower projects.

“India buys surplus electricity output at price reflecting cost plus a 15% net return,” according to the RMA report. “In addition, ongoing energy deficit, and strong political commitment in India for clean energy is expected to improve Bhutan’s external debt situation in the medium- to long-term [future].”

With a 22.42% increase in exporting electricity and reducing its imports for construction material to build hydro facilities, Bhutan’s trade deficit with India – its largest power purchaser – improved $81.6 million from $464.6 million to about $383 million in FY17.

In 2016, the South Asia Association for Regional Cooperation (SAARC) said it was in favor of a framework for inter-regional grid connectivity resulting from the greatly increasing installed hydroelectric capacity in Bhutan.

SAARC member states include: Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka. 

Overall
Bhutan’s overall GDP trade deficit improvement from 33.13% in FY16 to 24.44% for FY17 is due to a decrease in domestic power consumption and hydro-related imports. The improvement also reflects other export sectors that when combined, grew by about 12.45% and RMA said the country’s gross international reserves now stand at $1.11 billion.

As of June 2017, RMA reports Bhutan’s total external debt liability is about $2.51 billion. Hydro investment FY17 numbers constitute more than 76% of this amount at about $1.95 billion and of this, 90% is in Indian rupees.

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