Challenges on managing public debt in developing countries

The Bhutanese experience

Presented by:

Tshewang Norbu Chief Program Officer

Debt Management DivisionDepartment of Public Accounts

Ministry of FinanceThimphu.

Presentation outline

• Country background• Macroeconomic situation• External debt policy• Legislative framework• Current debt situation• Issues and challenges • Way forward

Country background

• Bhutan is a low income country• Adopted Constitutional democracy in 2008

- Constitution of Bhutan was adopted in July

2008- Upper House Election in December 2007- Lower House Election in March 2008

Macroeconomic situation

• Bhutanese currency (Ngultrum) is pegged to Indian Rupee at par value

• Export - main export item is hydropower. constituted over 22% of GDP in 2008/2009

• Overall current account shortfall about 7% of GDP in the past three years

External debt policy

• Borrowing resorted to only when grants are not available

• Borrowing for social projects, only from concessionary windows (ODA)

• Borrowing for hydropower projects done under special bilateral arrangement with GOI

Legislative framework (concerning debt management)

• The Constitution of Bhutan (2008)• The Public Finance Act (2007)

Outstanding balance for repayment (Convertible currency) Excluding GOI and domestic

Issues & challenges (as per December 2010 DeMPA)

• Legal Framework

- Primary legislation in place but lacks clear debt management objective• Managerial Structure- Fragmented debt management responsibility. PED; MoEA; DMD. DMD is not the

principal debt management entity- Lack of capacity to perform middle office function• Debt Management Strategy- No formal documented debt management strategy. • Evaluation of Debt Management Operations- No clear debt management objectives - No clear debt management strategy• Coordination - Lack of institutionalized data sharing process and procedures- Lack of in-house capacity to do risk assessment for guarantees

Issues & challenges (as per DeMPA) contd.

• External Borrowing- Financing terms across creditors not assessed- Legal advisors not involved in reviewing external

borrowings • Cash Flow Forecasting and Cash Balance management- Weak forecasting/projection capacity of cash flows and

cash balances in the central govt. account.• Debt Administration and Data Security- Lack of procedures manual for processing of debt service- Lack of procedures manual for debt data recording and

validation- Lack of manuals for storage of agreements and debt

administration records

Foreseeable challenges (personal perspective)

• Graduation from LIC to MIC status and hardening of borrowing terms- ADF to OCR- IDA to IBRD • Underdeveloped domestic debt market• Dwindling of grant support• Access to international capital market ???- No country credit rating• Negotiation power (interest rate; maturity; policy covenants)- Financing needs, more so, at increased level to ensure inclusive socio economic

growth and development. GNH. • Landlocked and Small base economy (highly vulnerability to external shocks)- Infrastructure development very costly

THANK YOU