[{"data":1,"prerenderedAt":-1},["ShallowReactive",2],{"doc-detail-111738-en":3,"doc-seo-111738-105":29,"detail-sidebar-cat-0-en-105":91},{"code":4,"msg":5,"data":6},0,"success",{"doc_id":7,"user_id":8,"nickname":9,"user_avatar":10,"doc_module":4,"category_id":11,"category_name":12,"doc_title":13,"doc_description":14,"doc_content":15,"file_id":16,"file_url":17,"file_type":18,"file_size":19,"view_count":20,"is_deleted":4,"is_public":20,"is_downloadable":20,"audit_status":20,"page_count":21,"language":22,"language_code":23,"site_id":24,"html_lang":23,"table_of_contents":25,"faqs":26,"seo_title":13,"seo_description":14,"update_tm":27,"read_time":28},111738,1099514067438,"River Wang","https://ap-avatar.wpscdn.com/avatar/100002539ee87300030?x-image-process=image/resize,m_fixed,w_180,h_180&k=1780474512215547542",8,"Research & Report","Bhutan: Joint Bank-Fund Debt Sustainability Analysis - Moderate risk of debt distress","Joint Bank-Fund Debt Sustainability Analysis for Bhutan assesses the risk of both overall and external debt distress as moderate, remaining unchanged from the 2022 assessment. Despite mechanical results indicating higher risk under baseline indicator thresholds, judgement is applied due to mitigating factors tied to hydropower lending. Most public and publicly-guaranteed debt is linked to Government of India hydropower project loans covered under an intergovernmental agreement, with India bearing financial and construction risks and purchasing surplus electricity. Limited shock absorption is noted, while stronger fiscal consolidation, export resilience, and enhanced debt management are recommended.","Public Disclosure  \nPub lic Disc losure Authorized  \nApproved by:  \nManuela Francisco and Mathew Verghis (IDA)  \nand Corinne Deléchat and Boileau Loko (IMF)  \nPrepared by the staff of the International Development Association (IDA) and the International Monetary Fund (IMF)1  \n\n| BHUTAN: JOINT BANK-FUND DEBT SUSTAINABILITY ANALYSIS |  |\n| --- | --- |\n| Risk of external debt distress | Moderate |\n| Overall risk of debt distress | Moderate |\n| Granularity in the risk rating | Limited space to absorb shocks |\n| Application of judgment | Yes. The risk of debt distress is assessed as moderate due to the FDI nature of hydro related-loans. |\n\nBhutan’s risk of overall and external debt distress is assessed as moderate, unchanged from the 2022 DSA.2 While the mechanical results point to a high risk of overall and external debt distress, with breaches in the thresholds for some indicators under the baseline scenario, judgement was applied given the unique mitigating factors. Most of the outstanding public and publicly-guaranteed debt is linked to hydropower project loans from the Government of India. These projects are implemented under an intergovernmental agreement under which the Government of India covers both financial and construction risks of the projects and commits to buy all surplus electricity at a price reflecting cost plus a margin. Overall, within the moderate rating, Bhutan is assessed to have limited space to absorb  \n1 Prepared in accordance with the Guidance Note of the Joint Bank-Fund Debt Sustainability Framework for Low Income Countries , February 2018.  \n2 Bhutan’s debt carrying capacity is assessed as strong. The composite index (CI), estimated at 3 based on the April 2024 World Economic Outlook (WEO) and the 2022 World Bank Country Policy and Institutional Assessment (CPIA) data, indicates a medium debt-carrying capacity for Bhutan, but another medium signal in the upcoming WEO round would be necessary to downgrade Bhutan’s debt carrying capacity from its current strong level determined by previous rounds. This represents an improvement compared to the medium debt-carrying capacity assessed in the 2022 DSA. If the CI were to remain below the lower bound of a strong debt carrying capacity (that is, 3.05) in the October 2024 WEO, the classification would revert back to medium debt carrying capacity.  \nadditional shocks, particularly export shocks. Going forward, a robust fiscal consolidation underpinned by revenue mobilization, a stable peg with the Indian rupee, reforms to improve productivity and competitiveness of thenon-hydropower sector, and enhanced debt management would help to reduce the risk of debt distress.  \n1. The coverage of public debt in this debt sustainability analysis (DSA) includes public and publicly-guaranteed (PPG) debt. PPG debt covers the non-financial public sector and the central bank. It includes debt contracted by the central government, central bank (that is, the Royal Monetary Authority or RMA) debt (such as the standby credit facilities extended by the Government of India), and non-financial state-owned enterprises (SOE) debt, both external and domestic.3 Bhutan’s local governments, social security fund, and extra budgetary funds do not have any outstanding debt. The external debt definition is based on residency. Central bank debt for the purposes of monetary policy or reserves management is excluded in line with the guidance note (e.g. , bilateral currency swap with the Reserve Bank of India, deposit from the Central Bank of Kuwait) . The addition of non-guaranteed domestic SOE debt represents an expansion of coverage with respect to the 2022 DSA in line with the authorities’ commitment under the World Bank’s First Green and Resilient Growth Development Policy Credit (DPC) operation.4 Because of full coverage of SOE external and domestic debt, the default shock of 2 percent of GDP for incomplete coverage in the contingent liability stress tests is removed. The calibration of the con","cbCaihX1OkqekdDe","https://ap.wps.com/l/cbCaihX1OkqekdDe","pdf",850072,1,24,"English","en",105,"# Risk assessment summary\n## Overall and external debt distress risk\n## Role of judgement and mitigating factors\n# Debt coverage and definitions\n## Public and publicly-guaranteed debt scope\n## External debt definition and exclusions\n## Contingent liability and shock calibration","[{\"question\":\"What is the assessed risk level for Bhutan’s overall and external debt distress?\",\"answer\":\"Both overall and external debt distress risks are assessed as moderate, unchanged from the 2022 DSA.\"},{\"question\":\"Why is judgement applied even when mechanical indicator results suggest higher risk?\",\"answer\":\"Judgement is applied because the assessed risk is mitigated by the nature of hydropower-related loans, where the Government of India covers key financial and construction risks under an intergovernmental arrangement.\"},{\"question\":\"Which debt components are included in the public debt coverage for this analysis?\",\"answer\":\"The analysis includes public and publicly-guaranteed (PPG) debt covering non-financial public sector and the central bank, including central government, central bank (RMA) debt, and external and domestic non-financial SOE debt, while excluding certain central bank debt for monetary policy or reserves 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is the assessed risk level for Bhutan’s overall and external debt distress?","Question",{"text":75,"@type":76},"Both overall and external debt distress risks are assessed as moderate, unchanged from the 2022 DSA.","Answer",{"name":78,"@type":73,"acceptedAnswer":79},"Why is judgement applied even when mechanical indicator results suggest higher risk?",{"text":80,"@type":76},"Judgement is applied because the assessed risk is mitigated by the nature of hydropower-related loans, where the Government of India covers key financial and construction risks under an intergovernmental arrangement.",{"name":82,"@type":73,"acceptedAnswer":83},"Which debt components are included in the public debt coverage for this analysis?",{"text":84,"@type":76},"The analysis includes public and publicly-guaranteed (PPG) debt covering non-financial public sector and the central bank, including central government, central bank (RMA) debt, and external and domestic non-financial SOE debt, while excluding certain 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