This DSA was prepared by IMF and International Development Association staff in collaboration with the Asian Development Bank and Bhutanese authorities. The analysis updates the previous Joint DSA dated May 30, 2014 (IMF Country Report No. 14/178). The DSA follows the IMF and World Bank Staff Guidance Note on the Application of the Joint Fund-Bank Debt Sustainability Framework for Low-Income Countries (November 7, 2013). The data underlying the analysis are from the Bhutanese authorities, IMF, and World Bank staff estimates.
The magnitude of the breach has increased due to the revision of the Country Policy and Institutional Ratings (CPIA) to medium, from a strong rating in the 2014 DSA. In 2013 and 2014, Bhutan’s 3-year moving average CPIA ratings were 3.74 and 3.71, marginally below the “strong” rating threshold of 3.75.
The DSA uses fiscal years (FY). For example, 2013 means FY 2012/13.
The second generation of hydropower projects will be based on joint venture (JV) models (see text table below). In this model, 70 percent of the project will be financed by loans from India, while the remaining 30 percent will the financed by equity equally split between India and Bhutan’s governments. India will provide a grant to Bhutan to finance its equity share.
There is uncertainty surrounding the exact timing of the projects, as well as the future of some additional projects under discussion that are not included in the projection.
Prior to commissioning, construction of these hydropower plants has been the second largest contributor after services to real growth during the 10th FYP. A more than doubling of electricity generation capacity with the commissioning of these plants will lead to a jump in electricity exports and fiscal revenue, providing a much larger boost to economic growth in comparison to the construction phase.
In the 2014 DSA, public external debt was projected to peak at 120 percent of GDP. The main reason for the lower debt in the present DSA is the lower number of hydropower projects in the pipeline (three projects less).