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Tsewang Norbu
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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